property to a person partly in consideration of the payment of checks which amounted to an overdraft, but were guaranteed to the bank by the transferee,39 is an act of bankruptcy. A transfer is not the less preferential and an act of bankruptcy because made indirectly through a third person. Thus, where a debtor transferred property to the administratrix of the estate, which was the creditor of said debtor, in her individual capacity, who thereupon borrowed money which was given to the husband of the debtor for the discharge of the indebtedness for which the estate as well as the debtor was liable, it was an act of bankruptcy.40 Where a manufacturing corporation, as security for the payment of its note delivered to a bank, pledges all the material it has on hand at its mills, upon the agreement that it should have the privilege to sell or use such as might be needed in the operation of the mill, and that in case of such sale or use it would pay cash or transfer and deliver its equivalent in good accounts, and thereafter the corporation disposes of the material and within the four months. period transfers to the bank, accounts, a large amount of which accrued prior to the date of the loan and pledge, the transaction must be held not to be a mere exchange of securities but a preference to the bank, and an act of bankruptcy.*1 A cash sale of all the property of an insolvent firm and the application of the proceeds of the sale to the full payment of several of their creditors, leaving others unpaid, constitutes a preferential transfer in violation of section 3a (2).42

20. Third act of bankruptcy; preference through legal proceedings; subs. a(3).-Having suffered or permitted while insolvent,43 any creditor to obtain a preference ** through legal pro

39. Goldman v. Smith, 1 Am. B. R. 266, 93 Fed. 182.

40. In re McGee. 5 Am. B. R. 262. 105 Fed. 895.

41. Anniston Iron, etc., Co. v. Anniston Rolling Mills, 11 Am. B. R. 200, 125 Fed. 974.

42. Boyd v. Lemon-Gale Co., 8 Am. B. R. 81, 114 Fed. 647.

44

For an alleged concealment held to be a transfer, see Citizens' Bank v. De Pauw Co., 5 Am. B. R. 345, 105 Fed, 926.

43. That the debtor was insolvent at the time the preference was obtained must be shown. Acme Food Co. v. Meier, 18 Am. B. R. 550, 153 Fed. 74; In re Rome Planing Mill,

ceedings, and not having at least five days before a sale or final disposition of any property affected by such preference vacated or discharged such preference, constitutes an act of bankruptcy on the part of the person so doing. 45 This has been termed the passive act of bankruptcy. It differs from the corresponding act in the law of 1867 in that intent is not material. It is in harmony with section 67b, under which liens through legal proceedings are void, irrespective of intent on the part of the debtor, or pressure, due to knowledge, on the part of the creditor.46 Intent was necessary under the act of 1867 in order that a preference by permitting or suffering legal proceedings might constitute an act of bankruptcy, and such intent could not be inferred from the mere neglect of the alleged bankrupt, properly sued on a just claim, to interpose an answer where there was no valid defense-it could not be predicated on mere passive non resistance.47 The earlier and most of the later cases arising under the present law held that intent was not essential, but that result-the inequity flowing from the transaction rather than the animus of it-had been substituted therefor. 48 Two decisions held to the former doctrine that mere passivity was not enough.49 The Supreme Court finally upheld the majority of the previous cases.50 The rule is now settled that intent is not an element of pleading or proof where the third act of bankruptcy is relied on.51 An insolvent may be thrown into bankruptcy by the requisite number of his

3 Am. B. R. 123, 96 Fed. 812. Solvency or insolvency at the time of the petition can only have a reflex importance. Acme Food Co. v. Meier,

supra.

44. In re Rome Planing Mill, supra, that preference was actually secured through such proceedings must be shown.

45. Bankr. Act, 1898, § 3a (3). 46. Collier, Bankr., 6th ed., p. 45. 47. Wilson v. City Bank, 17 Wall. (U. S.) 473.

48. In re Meyers, 1 Am. B. R. 1; In re Reichman, 1 Am. B. R. 17,

91 Fed. 624; In re Moyer, 1 Am. B. R. 577, 97 Fed. 324; In re Rome Planing Mill, supra; In re Thomas, 4 Am. B. R. 571, 103 Fed. 272; In re Miller, 5 Am. B. R. 140, 104 Fed. 764; In re Harper, 5 Am. B. R. 567, 105 Fed. 900.

49. In re Nelson, 1 Am. B. R. 63, 98 Fed. 76; Duncan v. Landis, 5 Am. B. R. 649.

50. Wilson Bros. v. Nelson, 183 U. S. 191, 7 Am. B. R. 142.

51. Bradley Timber Co. v. White, 10 Am. B. R. 329, 121 Fed. 779, 58 C. C. A. 55. aff'g 9 Am. B. R. 441.

creditors, if a judgment has been entered against him, execution issued and levy made, and the sale is five or less days away, irrespective of whether he procured or merely could not prevent the judgment against him.52 Failure to vacate a preference resulting from such a judgment, levy and sale is an act of bankruptcy within the meaning of this clause.53 The act of bankruptcy is consummated five days before the sale, if at that time the levy has not been lifted; the sale having been noticed, and nothing having been done by the judgment debtor to set aside the preference, the creditors may file a petition against him; they are not required to wait for the sale.54 But while the failure to discharge a levy five days before sale is an act of bankruptcy, a distinct and independent act of bankruptcy is also committed by a failure to discharge the levy on each succeeding day, including the day of the sale, and limitations against the creditor's right to file the petition runs from the day of the sale and not from the fifth day previous thereto.55 Where, within the four months period, a corporation suffers its property, placed on premises leased by it and already subject to a mortgage, to secure its bonds, to be sold under a warrant of distraint for rent due, issued under a statute which gives the landlord a superior lien upon the property, the sale does not constitute a preference through legal proceedings, nor the commission of an act of bankruptcy on the part of the corporation.56

§ 21. Meaning of words." Insolvent " means what it is defined to mean in section 1(15). "Five days before a sale" means the same as five days before the day set for the sale."57

66

52. Matter of Rung Furniture Co., 10 Am. B. R. 44, where the cases interpreting section 3a (3) are col

lated.

53. Matter of Rung Furniture Co., 14 Am. B. R. 12, 139 Fed. 526.

54. In re National Hotel & Cafe Co., 15 Am. B. R. 69, 138 Fed. 947. 55. In re Nusbaum, 18 Am. B. R.

598, 132 Fed. 835.

56. Richmond Standard Steel, etc., Co. v. Allen, 17 Am. B. R. 583, 14 Fed. 657. See In re Belknap, 12 Am. B. R. 326, 129 Fed. 646.

57. In re Elmira Steele Co., 5 Am. B. R. 484; In re Meyers, 1 Am. B. R. 1. And compare Re North (1895), 2 Q. B. 624.

59

"Preference" refers merely to a resultant inequality between creditors of the same class.58 "Legal proceedings" means proceedings in a court to assert a legal remedy or obtain an equitable relief, any proceedings in a court of justice, interlocutory or final, by which the property of the debtor is seized and diverted from his creditors.60 A distraint of goods under a landlord's warrant is not "a legal proceeding" under this clause.61 'Suffered or permitted" includes passive nonresistance as well as nonability to resist.62 A debtor who does not pay a lawful debt when due, and stands by while his creditor secures a judgment against him, and levies upon his property, "suffers and permits" such judgment to be taken, and such levy to be made, and commits an act of bankruptcy under this clause.63 "Creditor" is defined in section 1(9). Where it is shown that the petitioning creditors induced a judgment creditor to levy execution on his judgment, they are estopped from setting up such levy as an act of bankruptcy.64

§ 22. Provision liberally construed.-The courts have interpreted this subdivision broadly. A payment of money to a sheriff by a debtor of the judgment debtor against whom an execution has been issued is a technical levy and available as an act of bankruptcy.65 So also is garnishee process after execution unsatisfied.co Failure to pay matured judgment notes followed by entry of judgment and execution issued is an act of bankruptcy.67 Although the judgment is more than four months old, the levy,

58. Section 60a.

59. Compare In re Emslie, 4 Am. B. R. 126, 102 Fed. 291, rev'g 3 Am. B. R. 282, 97 Fed. 929.

60. In re Rome Planing Mill, 3 Am. B. R. 123, 96 Fed. 812.

61. In re Belknap, 12 Am. B. R. 326, 129 Fed. 646.

62. In re Gallagher, 6 Am. B. R. 255.

63. Bogen & Trummel v. Potter

(C. C. A.), 12 Am. B. R. 288, 129 Fed. 533.

64. Matter of Marks Bros., 15 Am. B. R. 457, 142 Fed. 279.

65. In re Miller, 5 Am. B. R. 140, 104 Fed. 764.

66. In re Harper, 5 Am. B. R. 567, 105 Fed. 900.

67. In re Thomas, 4 Am. B. R. 571, 103 Fed. 272.

70

if within that period, followed by a sale, is an act of bankruptcy.68 But the mere entry of judgment without the issue of execution is not an act of bankruptcy.69 The suing out of an attachment and levying the same does not suffice to constitute an act of bankruptcy.7 The enforcement of the lien of a judgment obtained prior to the enactment of the Bankruptcy Act by the issue of an execution is not a preference and the provisions of section 3a(3) do not apply. A failure to vacate a livery-stable keeper's lien is not an act of bankruptcy under such subdivision,72 and it is held that a mechanic's lien is not a lien obtained through legal proceedings.73

§ 23. Fourth act of bankruptcy; a general assignment or receivership; subs. a(4).—The making of a general assignment for the benefit of creditors, with or without preferences, has been an act of bankruptcy for more than a century. It was quite generally held under the law of 1867 that, being a palpable fraud on the law, it was an act of bankruptcy, although that act did not expressly so provide.75 While, under the decisions, there would seem to be little doubt that a general assignment is an act of bankruptcy, because intended to hinder or delay creditors,76 this new clause in the Act of 1898, section 3a(4), removes all question. Such an assignment, whether made by a person or copartnership, or by a corporation entitled to the benefits of the act under

68. In re Ferguson, 2 Am. B. R. 586, 95 Fed. 429.

69. In re Anderson, 2 N. B. N. Rep. 1000. Compare also, on the general subject, In re Chapman, 3 Am. B. R. 607, 99 Fed. 395, and Parminter Mfg. Co. v. Stoever, 3 Am. B. R. 220, 97 Fed. 330.

70. In re Vetterman, 14 Am. B. R. 245, 135 Fed. 443; In re Standard Steel Casting Co., 10 Am. B. R. 594, 124 Fed. 75.

71. Owen v. Brown, 9 Am. B. R. 717, 120 Fed. 812, 57 C. C. A. 180.

72. In re Mero, 12 Am. B. R. 171, 128 Fed. 630.

73. In re Emslie, 4 Am. B. R. 426, 102 Fed. 292.

74. Compare Jones v. Sleeper, Fed. Cas. No. 7,496.

75. Compare Globe Ins. Co. v. Cleveland Ins. Co., Fed. Cas. No. 5,486: Platt v. Preston, Fed. Cas. No. 11,219; In re Kasson, Fed. Cas. No. 7,617; In re Mendelsohn, Fed. Cas. No. 9.420; MacDonald v. Moore, Fed. Cas. No. 8.763.

76. Section 3a (1).