damages.634 The question as to the value of the goods sold at the time of the sale should be submitted to the jury.635 The purchaser of a stock of goods in bulk who takes possession without having complied with a sales in bulk act is not a "bona fide holder for value prior to adjudication" within the meaning of subdivision e.636 The burden is upon him to show that he had no knowledge of the facts and circumstances sufficient to put him on inquiry, and requires him to use such means of knowledge as were at hand to learn whether the seller was in financial difficulties, and failure to make proper inquiries imputes to the purchaser knowledge of such insolvency, and he cannot claim to have purchased the goods in good faith.637

d. Suits to avoid fraudulent transfers.- (1) IN GENERAL.- - The presumption is that the trustee has complied with the provisions of the bankruptcy act, and is qualified to act.638 In many cases, the trustee will, be able to sue under either § 67-e or § 70-e. The important difference is that, if the suit is based on the State law, the State statute of limitation applies.639 Thus, many fraudulent transactions, which could not be brought under § 67-e will be timely if resting on § 70-e. A suit may be maintained by the trustee under this subdivision, although neither the trustee nor any creditor has reduced the claim against the bankrupt to a judgment, issued execu

634. Conquest v. Goldman (Me. Sup. Jud. Ct.), 48 Am. B. R. 450, 117 Atl. 236.

The selling price of the goods is evidence of their value. Conquest v. Goldman (Me. Sup. Jud. Ct.), 48 Am. B. R. 450, 117 Atl. 236.

635. Conquest v. Goldman (Me. Sup. Jud. Ct.), 48 Am. B. R. 450, 117 Atl. 236.

636. Godwin v. Tuttle (Ore. Sup. Ct.), 33 Am. B. R. 93, 141 Pac. 1120; In re Calvi (D. C., N. Y.), 26 Am. B. R. 206, 185 Fed. 642.

637. Matter of Rosenberg (Ref. N. Y.), 22 Am. B. R. 900; In re Calvi (D. C., N. Y.), 26 Am. B. R. 206, 185 Fed. 642; Bentley v. Young (D. C., N. Y.), 31 Am. B. R. 506, 210 Fed. 202. Evidence insufficient to show fraudulent intent on part of vendee. Sabin v. Horenstein (C. C. A., 9th Cir.), 44 Am. B. R. 422, 260 Fed, 754.

Where the question is one of fact as to the purchasers' good faith, and they

as witnesses have failed to satisfy the trial court thereof and their stories in the printed record are unpersuasive the verdict will not be disturbed. Bentley v. Young (C. C. A., 2d Cir.), 34 Am. B. R. 365, 223 Fed. 536, affg. 31 Am. B. R. 506, 210 Fed. 202.

Failure of vendee to keep record.— The failure of a purchaser, to whom the bankrupt sold his entire stock of goods, without complying with the New York Bulk Sales Act, to keep a record of his sales, prevents him from complaining if doubts as to the amount of goods sold are decided against him. Matter of Nostrand Leather Goods Shop, Inc. (D. C., N. Y.), 48 Am. B. R. 140, 278 Fed. 210,

638. Breckons v. Snyder, 15 Am. B. R. 112, 211 Pa. St. 176, 60 Atl. 575. 639. Matter of Salm Baking Co. (D. C., Tex.), 43 Am. B. R. 511; Riggs v. Price (Mo. Sup. Ct.), 210 S. W. 420, 43 Am. B. R. 413.

Statute of limitations.-The trus

641

tion and had it returned unsatisfied.640 To hold that a trustee cannot attack a fraudulent conveyance made by the bankrupt more than four months before the filing of the petition, without showing that some creditor had obtained a judgment and issued execution thereon, so that he could maintain a similar action, would be simply to provide an easy and convenient method for a dishonest debtor to dispose of his property. A trustee may avoid a fraudulent transfer under this section although there are no creditors who, because they had no liens or judgments, would have been in a position at the time of filing of the petition in bankruptcy, to attack the transfer.642 A trustee is not guilty of laches who files a bill to avoid a fraudulent transfer within three weeks after his appointment and qualification.643 (2) WHO MAY BRING SUIT.- We have already considered the ques

tee in a suit to set aside a fraudulent transfer was barred by the three-year statute of limitations where it appeared that the creditor in whose right the action was brought had acquired knowledge of facts showing the fraud more than three years before the action was instituted. Davis v. Willey (D. C., Cal.), 45 Am. B. R. 348, 263 Fed. 588.

In a suit by a trustee in bankruptcy to set aside a conveyance of land by a bankrupt alleged to have been made in fraud of creditors, the grantee may invoke the statute of limitations in respect of the antecedent liabilities of the grantor, as a defense. Pace's. Trustee v. Pace (Ky. Ct. of App.), 33 Am. B. R. 834, 172 S. W. 925.

640. Mueller v. Bruss, 8 Am. B. R. 442, 11 Wis. 406; Beasley v. Coggins, 12 Am. B. R. 355, 48 Fla. 215, 57 So. 213; Thomas v. Roddy, 19 Am. B. R. 873, 122 N. Y. App. Div. 851, 107 N. Y. Supp. 473; Ryker v. Gwynne (N. Y. Sp. T. Sup. Ct.), 21 Am. B. R. 95. The trustee in bankruptcy of a mortgagor may attack the validity of a chattel mortgage although the claims of creditors are not in judgment. Mitchell v. Mitchell (D. C., N. Car.), 17 Am. B. R. 382, 147 Fed. 280; Sherwood v. Holbrook (N. Y. App. Div.), 40 Am. B. R. 100, 178 App. Div. 462, 165 N. Y. Supp. 514; Davis v. Gates

(D. C., Pa.), 37 Am. B. R. 818, 235 Fed. 192; Sheldon v. Parker, 11 Am. B. R. 152, 66 Neb. 610; .McKey, v. Emanuel (Ill. Sup. Ct.), 32 Am. B. R. 350, 104 N. E. 1051; Barrett v. Kaigler (Ala. Sup. Ct.), 40 Am. B. R. 161, 76 So. 320.

Unfiled chattel mortgage. The Court of Appeals of New York have held that the present bankruptcy act arms the trustee in bankruptcy with the right to assert the invalidity of an unfiled chattel mortgage in favor of the creditors of the mortgagor, even though their claims are not in judg ment. Skilton v. Coddington, 15 Am. B. R. 810, 185 N. Y. 80, 77 N. E. 790, cited in Dunn Salmon Co. v. Pillmore, 19 Am. B. R. 172, 55 N. Y. Misc. 546, 106 N. Y. Supp. 88.

641. Thomas v. Roddy, 19 Am. B. R. 873, 122 N. Y. App. Div. 851, 107 N. Y. Supp. 473; McKey v. Emanuel (Ill. Sup. Ct.), 32 Am. B. R. 350, 104 N. E. 1051; Barrett v. Kaigler (Ala. Sup. Ct.), 40 Am. B. R. 161, 76 So. 320; Cooper Grocery Co. v. Penland (C. C. A., 5th Cir.), 40 Am. B. R. 589, 247 Fed. 480.

642. Baldwin v. Kingston (D. C., N. J.), 40 Am. B. R. 641, 247 Fed. 163. 643. Davis v. Gates (D. C., Pa.), 37 Am. B. R. 818, 235 Fed. 192.

645

644 and

While

tions as to the proper parties to actions to avoid preferences, fraudulent transfers made within the four months period." in a sense a trustee may be said to be the alter ego of the creditors in that an action to set aside a fraudulent conveyance is for their benefit, he is, in law or in fact, but an arm of the court, and acts, not for the creditors individually or collectively, but for the estate.64 As in the suits just mentioned, the general rule is that the trustee in bankruptcy is the proper party plaintiff in suits brought to set aside transfers under subdivision e of this section, and that this right to bring suit is not transferred to the creditors by the failure of the trustee to act.648 On the other hand it has been held that § 64-b (2) impliedly recognizes the right of a creditor to institute proceedings to recover for the benefit of the estate of the bankrupt, property transferred by him in fraud of creditors more than four months

644. See under section 60, ante, subtitle "Who may bring suit."

645. See under section 67, ante, subtitle "Parties."

646. Riggs v. Price (Mo. Sup. Ct.), 43 Am. B. R. 413, 210 S. W. 420.

Trustee as representative of creditors. In a suit to set aside a conveyance made by the bankrupt in fraud of his creditors, the trustee in bankruptcy represents the interests of the creditors alone; in an action to recover property fraudulently conveyed the defendants may allege that any recovery had in the action would not be for the benefit of creditors but for the benefit of the bankrupt himself. Cartwright v. West (Sup. Ct., Ala.), 26 Am. B. R. 831, 55 So. 917.

A bill filed by a trustee in bankruptcy generally for the benefit of all creditors who may be entitled to impeach a transfer, for the purpose of enforcing a constructive trust, is maintainable although there is only one creditor entitled to benefit under the bill. Duncan v. Lum (Sup. Ct., Ala.), 41 Am. B. R. 145, 77 So. 718; Bergen v. Blackwood (Minn. Sup. Ct.), 42 Am. B. R. 746, 170 N. W. 508.

A fraudulent transfer by a bankrupt will not be set aside at the instance of his trustee in bankruptcy, where said

647

trustee does not represent any creditor entitled to avoid the transfer. Martin v. Commercial Nat. Bank, 40 Am. B. R. 765, 38 Sup. Ct. 176; Cobb v. First Nat. Bank of Livonia (D. C., Ga.), 45 Am. B. R. 48, 263 Fed. 1000.

647. In re Gray (N. Y. Sup. Ct.), 3 Am. B. R. 647, 47 App. Div. 554, 62 N. Y. Supp. 618; Barnes Mfg. Co. v. Norden (N. J. Sup. Ct.), 7 Am. B. R. 553, 67 N. J. L. 493, 51 Atl. 454; In re Kohler (C. C. A., 6th Cir.), 20 Am. B. R. 89, 159 Fed. 871; Ruhl-Koblegard Co. v. Gillespie (W. Va. Sup. Ct.), 22 Am. B. R. 643, 61 W. Va. 554, 56 S. E. 898; McMahon v. Pitham (Iowa Sup. Ct.), 33 Am. B. R. 125, 167 Iowa 498, 147 N. W. 920; Kimbrough v. Alred (Ala. Sup. Ct.), 43 Am. B. R. 116, 202 Ala. 413, 80 So. 617; Riggs v. Price (Mo. Sup. Ct.), 43 Am. B. R. 413, 210 S. W. 420; Neuberger v. Felis (Ala. Sup. Ct.), 43 Am. B. R. 703, 82 So. 172.

648. Ruhl-Koblegard Co. v. Gillespie (W. Va. Sup. Ct.), 22 Am. B. R. 643, 61 W. Va. 554, 56 S. E. 898; McMahon v. Pithan (Sup. Ct., Iowa), 33 Am. B. R. 125, 147 N. W. 920; Neuberger v. Felis (Ala. Sup. Ct.), 43 Am. B. R. 703, 82 So. 172, citing Collier on Bankruptcy (11th ed.), 722.

650

before bankruptcy. It has been held in two cases that the right to sue to set aside an alleged fraudulent transfer, made prior to the four months' period, may be assigned by the trustee to a creditor.65 But these decisions do not appear to have been based upon a proper consideration of the statutory limitation of the powers of a trustee, and the purpose and effect of the bankruptcy act. The trustee represents all the creditors. The avails of a suit to recover property alleged to have been fraudulently conveyed belongs to the bankrupt estate and should be distributed equally among the creditors. If a creditor has knowledge of facts which will aid in the prosecution of such a suit, it is his duty to disclose such facts, and he should not be encouraged to conceal them by being permitted to become possessed of the right to sue, and thus be enabled to profit by such knowledge to the exclusion of the other creditors." In a proper case the trustee may intervene in behalf of all the creditors in an action brought by one creditor to avoid a fraudulent transfer.

651

652

653

(3) JURISDICTION.- The words added by the amendment of 1903 are the same as those added to § 60-b and § 67-e. Their purpose and effect have been considered in the discussion of those sections.654 The effect of the specific reference to § 60-b and § 67-e in the amend

649. Matter of Vadner (D. C., Nev.), 42 Am. B. R. 465, 259 Fed. 914, citing text of 11th ed. at p. 1001.

650. In re Downing (D. C., N. Y.), 27 Am. B. R. 309, 192 Fed. 683, affd. 29 Am. B. R. 228, 201 Fed. 93; Casey v. Baker (D. C., N. Y.), 32 Am. B. R. 311, 212 Fed. 247.

651. In re Downing (D. C., N. Y.), 27 Am. B. R. 309, 192 Fed. 683 (affd. 29 Am. B. R. 228, 201 Fed. 93), in which the court recognizes the doubt as to expediency of permitting an assignment to a creditor of a cause of action to set aside such a transfer, by saying: "I think it would be far better practice to allow the creditor to prosecute the action in the name of the trustee at her own expense with an order that the recovery, if any, shall be for the benefit of the estate, but that out of such recovery the creditor shall be fully compensated for all costs and expenses including counsel fees before distribution. It may be and is a serious and close question whether a trustee in bankruptcy vested by stat

ute with the right to prosecute an action to set aside a deed as fraudulent (one executed and delivered more than four months prior to the institution of bankruptcy proceedings) may assign the same. It is a statutory right pure and simple and is conferred on the trustee as such, as an officer in fact of the court, to be exercised in the interest of and for the benefit of the creditors of the bankrupt. The interest he has in the real estate, if any, is held by him for the benefit of the creditors in the same way." It is difficult to reconcile this statement of the court with the final conclusion that a sale by a trustee of such a right of action may be ordered.

652. Googins v. Skillings (Me. Sup. Jud. Ct.), 44 Am. B. R. 378, 108 Atl. 50.

653. For the time when this amendment became operative, see "Supplementary Section to Amendatory Act," post.

654. See in sections 60 and 67.

ment of § 23-b in 1903 and the omission of any reference to suits to recover under § 70-e raised a question as to the jurisdiction of bankruptcy courts of actions under § 70-e. It was held that the omission operated to bring actions under § 70-e within the general rule as laid down in § 23-b, and that while the bankruptcy court had general jurisdiction over the subject-matter it could only be exercised under the conditions imposed by § 23-b, that is, by consent of the proposed defendants.655 This defect in the law was remedied by a second amendment of § 23-b in 1910, which enlarged the jurisdiction of the bankruptcy court to entertain suits under § 70-e as well as under §§ 60-b and 67-e.656 A district court, as a court of primary jurisdiction in a bankruptcy proceeding, has jurisdiction under § 23, ante, of a suit to recover property alleged to have been fraudulently transferred in violation of State law no matter where situated.65 The trustee may maintain the suit in a district other than the one where he was appointed.658 This question of jurisdiction is more fully considered under § 23, ante.

659

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

658. Teague v. Anderson Hardware Co. (D. C., Ga.), 20 Am. B. R. 424, 161 Fed. 765.

(4) NATURE OF ACTION.-There is some diversity of opinion upon the question as to the proper form of action under this subdivision. Some of the decisions, although based upon a variety of reasons, are to the effect that such cases are cognizable in equity. In other cases it has been held that in 'such actions the parties are entitled to a jury trial. 660 It has been held that the trustee may sue to recover 655. Gregory v. Atkinson (D. C., Mo.), 11 Am. B. R. 495, 127 Fed. 183, disapproved in Hurley v. Devlin (D. C., Kan.), 17 Am. B. R. 793, 149 Fed. 268, holding that the bankruptcy court, without the consent of the defendant, has jurisdiction of a suit by the trustee to set aside an alleged fraudulent transfer of property made by the bankrupt anterior to the four months' period. Sheppard v. Lincoln (D. C., N. Y.), 25 Am. B. R. 804, 184 Fed. 182; Hull v. Burr (C. C. A., 5th Cir.), 18 Am. B. R. 541, 550, 153 Fed. 945; Prescott v. Galluccio (D. C., N. Y.), 21 Am. B. R. 229, 235, 164 Fed. 618; Skewis v. Barthell (D. C., Iowa), 18 Am. B. R. 429, 152 Fed. 534.

656. Milkman v. Arthe (C. C. A., 2d Cir.), 34 Am. B. R. 536, 223 Fed. 507, revg. 32 Am. B. R. 519, 213 Fed. 642; Davis v. Gates (D. C., Pa.), 37 Am. B. R. 818, 235 Fed. 192.

659. Wall v. Cox (C. C. A., 4th Cir.), 4 Am. B. R. 659, 101 Fed. 403; Beasley v. Coggins, 12 Am. B. R. 355, 48 Fla. 215, 57 So. 213; Davis v. Gates (D. C., Pa.), 37 Am. B. R. 818, 235 Fed. 192; McCabe v. Guido (Miss. Sup. Ct.), 41 Am. B. R. 178, 77 So. 801; Riggs v. Price (Mo. Sup. Ct.), 43 Am. B. R. 413, 210 S. W. 420.

660. Allen v. Gray, 25 Am. B. R. 423, 201 N. Y. 504, 94 N. E. 652, revg. 24 Am. B. R. 642, 139 N. Y. App. Div. 428, 124 N. Y. Supp. 137; Warmath v. O'Daniel (C. C. A., 6th Cir.), 20 Am. B. R. 101, 159 Fed. 87; Philoon v. Babbitt (Me. Sup. Jud. Ct.), 45 Am. B. R. 489, 109 Atl. 817.