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have acted in good faith.200 The protection of bona fide purchasers under legal proceedings is discussed later in this section,291

g. Suits to recover property.-(1) IN GENERAL. Though all fraudulent transfers or incumbrances are here declared null and void and, by § 70-a (4) the title to property affected thereby vests in the trustees, yet a suit to recover will often be necessary. What has been said as to suits to set aside voidable preferences is largely applicable here,202 as are also the matters discussed under § 70 regarding the recovery of property fraudulently transferred under State laws, 293

(2) JURISDICTION.- The amendment of 1903 added the last sentence of subsection e. The words added are the same as those added to § 60-b and § 70-e.294 Clearly, they refer to any suit which may be brought under the subsection, and not merely to a suit based on a State law. The meaning and purpose of the amendment have already been discussed.295 The amendatory act has conferred jurisdiction upon district courts concurrent with State courts to set aside transfers made by a bankrupt within the four months' period, which are alleged to be null and void as to creditors by a State law.296 If the property, against which the lien is asserted, is in the possession

290. Matter of Schacht Motor Co. (Ref., Cal.), 31 Am. B. R. 624.

Mortgage to secure prior advances. - Where bankrupt gave to a bank a mortgage to secure prior advances which had been made under an agreement to give such security and it plainly appeared that bankrupt, who was then knowingly, hopelessly insolvent, had determined, days before he gave the mortgage, to abscond and leave his creditors unpaid, except as secured, the mortgage constituted a transfer to hinder, delay and defraud creditors, and, there being no "present" consideration, it was void, notwithstanding that the mortgagee might have acted in good faith. In re Thomas (D. C., N. Y.), 29 Am. B. R. 945, 199 Fed. 214.

291. See under this section, post, subtitle "Bona fide purchasers."

292. See under section 60 of this work, subtitle "Recovery of prefer

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294. Time amendments effective.For the time when the amendments

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became operative, see Supplementary section to amendatory act," post.

295. See under §§ 23 and 60, ante. 296. Johnston v. Forsyth Mercantile Co. (D. C., Ga.), 11 Am. B. R. 669, 127 Fed. 845. See McNulty v. Feingold (D. C., Pa.), 12 Am. B. R. 338, 129 Fed. 1,001, holding that a trustee in bankruptcy may maintain a suit in equity in a district court for an accounting of money collected by defendants on accounts fraudulently assigned to them by bankrupts, although the face value of such accounts is known to the trustee. As to actions by trustees to set aside fraudulent conveyances, see Schmitt v. Dahl (Sup. Ct., Minn.), 11 Am. B. R. 226, 188 Minn. 506; Kohout v. Chaloupka (Sup. Ct., Neb.), 11 Am. B. R. 265, 69 Neb. 677; Loganville Banking Co. v. Forrester (Ga. Ct. of App.), 36 Am. B. R. 279, 87 S. E. 694; Simpson v. Western Hardware & Metal Co. (D. C., Wash.), 35 Am. B. R. 851, 227 Fed. 304; Ruben

of a State court, the question of the validity of the lien should be tried in the State court.297

(3) NATURE OF ACTION.-A plenary suit is necessary to set aside. a fraudulent conveyance and to subject the property to the administration of the court of bankruptcy where the property is not in the possession or control of the court or of the bankrupt or anyone representing him at the time the petition was filed, and was not in the court's custody at the time of the commencement of the controversy, but in the actual possession of a third person under an adverse claim of ownership.298 To establish a liability under subsection e actual fraud must be shown, and suits under that subsection are peculiarly. within the cognizance of and should be entertained by the equity court, especially where the relief sought is the avoidance of a fraudulent conveyance, 299 but where the trustee seeks merely to recover the value of the property, without other relief, an action at law gives an adequate remedy.300 A defendant, having entered his defense upon the merits at large in an equity action waives his right to a trial at law. 201 If the bankrupt or his agent who is in possession refuses to deliver the property, contempt proceedings may be brought.3 (4) PARTIES.-If no trustee has yet been chosen, creditors may sue in the State or Federal courts, on behalf of themselves and all

stein v. Lottow (Mass. Sup. Ct.), 35 Am. B. R. 243, 220 Mass. 156.

297. Pietri v. Wells (La. Sup. Ct.), 36 Am. B. R. 105, 69 So. 847.

298. See under section 23, ante, subtitle "Nature of proceeding; Summary or plenary."

299. In re Hunt, 2 N. B. N. R. 539, Fed. Cas. 6,881; Schrenkeisen v. Miller, Fed. Cas. 12,480; Taylor v. Rasch, 5 N. B. R. 399, Fed. Cas. 13,801; Wall v. Cox (C. C. A., 4th Cir.), 4 Am. B. R. 659, 101 Fed. 404; Thompson v. First Nat. Bank, 84 Miss. 54, 36 So. Gnichtel v. First Nat. Bank, 66 N. J. Eq. 88, 53 Atl. 1041; Simpson v. Western Hardware & Metal Co. (D. C., Wash.), 35 Am. B. R. 851, 227 Fed. 304; Henderson v. Garner (Ala. Sup. Ct.), 39 Am. B. R. 792, 75 So. 387.

65;

300. Chickering v. Raymond (Ill. Sup. Ct.), 15 Ill. 362; Philoon v. Babbitt (Me. Sup. Jud. Ct.), 45 Am. B. R.

302

489, 109 Atl. 817; Elmore v. Symonds, 183 Mass. 321, 67 N. E. 314; Mowry v. Reed, 187 Mass. 174, 72 N. E. 936; Lyon v. Clark, (Mich. Sup. Ct.), 2 N. B. N. R. 792, 121′ Mich. 381, 88 N. W. 1046; Heig v. Caspary (N. Y. Sup. Ct.), 191 App. Div. 560, 181 N. Y. Supp. 633; Sessler v. Nemeof (D. C., Pa.), 25 Am. B. R. 618, 183 Fed. 656; Rosenthal v. Heller (D. C., Pa.), 45 Am. B. R. 586; 266 Fed. 563; Jackman v. Eau Claire Nat. Bank (Wis. Sup. Ct.), 125 Wis. 465, 104 N. W. 98, 115 Am. St. Rep. 955.

Cross-reference. See also under section 70, post, subtitle "Nature of action."

301. Rosenthal v. Heller (D. C., Pa.), 45 Am. B. R. 586, 266 Fed. 563.

302. See In re Deuell (D. C., Mo.), 4 Am. B. R. 60, 100 Fed. 633, and many cases where the remedy of contempt has been resorted to.

305

303

other creditors, to recover property fraudulently transferred." Section 64-b (2) clearly recognizes the right of a creditor to institute proceedings to recover for the benefit of the estate of the bankrupt, property fraudulently transferred by him, either before or after the filing of the petition.304 But after the adjudication and the appointment of a trustee, the right to sue for the recovery of property transferred fraudulently belongs to the trustee.30 On the failure of the trustee to sue, the right may not be transferred to a creditor,306 but the remedy of the creditors in such a case is to petition the court to compel the trustee to proceed.3 In some instances it may be necessary to require the creditors to indemnify the trustee for costs and expenses before requiring him to proceed to recover property alleged to have been fraudulently transferred.308 Receivers in bankruptcy have no legal capacity to maintain a suit to recover a fraudulent transfer made by the bankrupt.309 The bankrupt is not a necessary or proper party to an action by the

307

303. Guarantee Title & Trust Co. v. Pearlman (D. C., Pa.), 16 Am. B. R. 461, 144 Fed. 550. See also Googins v. Skillings (Me. Sup. Jud. Ct.), 44 Am. B. R. 378, 108 Atl. 50.

304. Right of creditors to sue.-A trustee in bankruptcy represents all persons interested in the estate of the bankrupt. He is the representative of the creditors of the bankrupt, and if he in any given case would have a right as their representative to institute a suit to set aside a fraudulent or preferential transfer, it seems to follow as a necessary consequence that

such creditors are entitled to do so also, in the absence of a trustee, and to maintain the same until such trustee shall have been chosen when he would be entitled to become a party plaintiff in the suit. In re Frost v. Latham & Co. (D. C., Ala.), 25 Am. B. R. 313, 181 Fed. 866. See also Board of Directors v. Lowrance (S. Car. Sup. Ct.), 43 Am. B. R. 31, 97 S. E. 830.

305. Glenny v. Langdon, 98 U. S. 20, 25 L. Ed. 43; Trimble v. Woodhead, 102 U. S. 647, 26 L. Ed. 290; In re Lowe (D. C., Ind.), 19 Fed. 589; New Orleans Banking Assoc. v. Le Breton (C. C., La.), 14 Fed. 646; Scott v.

trustee to set aside a conveyance

Devlin (D. C., N. Y.), 89 Fed. 970; Viquesney v. Allen (C. C. A., 4th Cir.), 12 Am. B. R. 402, 131 Fed. 21; Lowell v. Latham & Co. (D. C., Ala.), 32 Am. B. R. 191, 211 Fed. 374; Bolling v. Munchas (Ala. Sup. Ct.), 59 Ala. 482; Wright v. Ehrlich & Co. (Ga. Sup. Ct.), 146 Ga. 400, 91 S. E. 412; Thurmond v. Andrews, 10 Bush (Ky.), 400, 13 N. B. R. 157; Anderson v. Anderson, 80 Ky. 638; Allen v. Montgomery, 48 Miss. 101, 10 N. B. R. 503; Goodwin v. Sharkey, 5 Abb. Prac. (N. S) 64, 3 N. B. R. 558; Elder's Ex'rs v. Harris (Va. Sup. Ct.), 76 Va. 187.

306. Moyer v. Dewey, 103 U. S. 301, 26 L. Ed. 394.

307. Trimble v. Woodhead, 102 U. S. 647, 26 L. Ed. 290; Glenny v. Langdon, 98 U. S. 20, 25 L. Ed. 43; McMaster v. Campbell, 41 Mich. 513, 2 N. W. 836; Freelander v. Holloman, 9 N. B. R. 331, Fed. Cas. 5,081.

308. In re Barnes, 18 Fed. 158; In re Griffith, 1 N. B. N. 546; In re Hughes, 1 N. B. N. 226, Fed. Cas. 6,841; In re Sawyer, 16 N. B. R. 460, Fed. Cas. 12,396; In re McNamara, 2 N. B. N. 341.

309. Frost v. Latham & Co. (D. C., Ala.), 25 Am. B. R. 313, 181 Fed. 866.

as in fraud of creditors.310 The question as to the proper parties to actions to avoid transfers made fraudulent by State law is considered under section seventy, post,"

311

312

(5) PLEADING AND PRACTICE. If a proceeding to set aside an alleged fraudulent transfer is instituted in a court of bankruptcy it must be governed as to pleading and practice by the laws applicable to that court.313 If the property may be recovered summarily, a petition, duly verified, will usually be enough to secure the order to show cause. It should show facts bringing it within the terms of some of the subsections of this section.314 The facts and circumstances upon which reliance is had to show fraud must be set out clearly, concisely, and with sufficient particularity to apprise the opposite party of what he is called upon to answer. As in the case of suits to avoid preferences, ,316 it has been held that a complaint to avoid a transfer under this subsection must allege that claims of creditors have been filed. and allowed against the estate, 317 and that the trustee has not sufficient assets in his hands belonging to the estate to pay the bankrupt's debts in full.318 It may be doubted, however, whether the

315

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312. See also under section 70, post, subtitle "Pleading and practice."

313. Westall v. Avery (C. C. A., 4th Cir.), 22 Am. B. R. 673, 171 Fed. 626, holding that such a proceeding brought in a Federal court is governed by the Federal equity practice, unaffected by the procedure obtaining in the State courts.

314. Allegations in pleadings.- For instance, in the case of McNulty v. Wiesen (D. C., Pa.), 12 Am. B. R. 341, 130 Fed. 1012, it was held that an allegation in an answer that the purchase of book accounts was made without intent on the part of the defendants to delay, hinder and defraud the bankrupt's creditors, or any of them, is not impertinent, for the reason that under subsection e the defendants are

required to show that they were purchasers in good faith and for a present fair consideration. See also Johnston v. Forsyth Mercantile Co. (D. C., Ga.), 11 Am. B. R. 669, 127 Fed. 84.

315. Flanders v. Coleman, 250 U. S. 223, 43 Am. B. R. 563, 39 Sup. Ct. 472, 63 L. Ed. 948; Johnston v. Forsyth Mercantile Co. (D. C., Ga.), 11 Am. B. R. 669, 127 Fed. 845; Crim v. Rice (C. C. A., 2d Cir.), 37 Am. B. R. 320, 232 Fed. 570.

316. See under section 60, ante, p. 1324.

317. Leavengood v. McGee (Ore. Sup. Ct.), 91 Pac. 453; Crary v. Kurtz (Iowa Sup. Ct.), 132 Ia. 105, 105 N. W. 590, 109 N. W. 452; Nicholas v. Murray, 18 N. B. R. 469, Fed. Cas. 10,223.

318. Shelby v. Nolen, 39 Tex. Civ. App. 307, 88 S. W. 528; Flint v. Chaloupka (Neb. Sup. Ct.), 115 N. W. 535; Roney v. Conable (Ia. Sup. Ct.), 125 Ia. 664, 101 N. W. 505; Seager v. Armstrong (Minn. Sup. Ct.), 95 Minn. 414, 104 N. W. 479; Lesser v. Bradford Realty Co. (N. Y. Sup. Ct.), 15

319

necessity to aver and prove a deficiency of assets still exists in view of the amendment of 1910 to section 47-a (2) giving the trustee all the rights of a judgment creditor holding an execution unsatisfied as the return of an execution unsatisfied would show that a deficiency of assets exists.31 A complaint does not state a cause of action under this subdivision unless it is alleged that the transfers sought to be attacked were made within four months of the time the petition in bankruptcy was filed.320 The trustee should not bring suit without obtaining a direction to that effect by the referee in charge.321 In a suit to recover specific property an injunction against further transfer is a right incidental to the suit.322 It is not a condition precedent to the right to maintain an action to set aside a fraudulent transfer that the trustee should have tendered to the defendant the price paid before commencing the action.323

(6) JUDGMENT.324-If the suit is for value, the judgment, if granted, should be for the worth of the property, not the amount realized under the execution sale by the transferee.325 If valid as to the "present consideration" and void as to the remainder of the value of the property transferred because in fraud of creditors, the recovery will be limited to the part that is void and the remainder may be retained.326 The setting aside of a mortgage in which the

Am. B. R. 123, 47 Misc. 463, 95 N. Y. Supp. 933; McKey v. Smith, 255 Ill. 465, 99 N. E. 695; Entwisle v. Cohen (N. Y. Sup. Ct.), 141 App. Div. 834, 125 N. Y. Supp. 935; Hibschman v. Bevis (Wash. Sup. Ct.), 42 Am. B. R. 154, 174 Pac. 5. Compare Riggs v. Price (Mo. Sup. Ct.), 43 Am. B. R. 413, 210 S. W. 420.

319. Kraver v. Abrahams (D. C., Pa.), 29 Am. B. R. 365, 203 Fed. 782.

320. Thomas v. Roddy, 19 Am. B. R. 873, 122 N. Y. App. Div. 851, 107 N. Y. Supp. 473.

321. See also, generally, under sections 3, 23 and 60 of this work.

Intervention by trustee. The trus tee may be brought before the court by amendment to the original bill although it was filed before bankruptcy. Rennells v. Potter (Mich. Sup. Ct.), 40 Am. B. R. 480, 164 S. W. 475.

322. Hall v. Glen (D. C., Cal.), 39 Am. B. R. 54, 247 Fed. 997.

323. Johnston v. Forsyth Mercantile

Co. (D. C., Ga.), 11 Am. B. R. 669, 127
Fed. 845. See, however, Lanham v.
State Bank of Rome (C. C. A., 5th
Cir), 45 Am. B. R. 50, 268 Fed. 458.

324. See also under section 70, post, subtitle "Judgment."

325. Clarion Bank v. Jones, 21 Wall. 325.

Amount of recovery. In an action by a trustee in bankruptcy to recover property fraudulently transferred, the amount of the recovery by the trustee will be limited to the amount of claims against the bankrupt with interest and costs, including any unpaid costs in the bankruptcy proceedings. Smith v. Seibel (D. C., Ia.), 44 Am. B. R. 499, 258 Fed. 454.

326. Jackson v. Sedgwick (D. C., N. Y.), 26 Am. B. R. 836, 189 Fed. 508; Vollmer v. Plage (D. C., N. Y.), 26 Am. B. R. 590, 186 Fed. 598; In re Mahland (D. C., N. Y.), 26 Am. B. R. 81, 184 Fed. 743.

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