Vol. I, p. 504. Supp., p. 464.] BANKRUPTCY [First ed., 1912 Suspension of state insolvency laws - In general. To same effect as original annotation, see In re Brinn, (N. D. Ga. 1919) 262 Fed. 527. What state laws are superseded.— "A statute in order to be such an insolvency law as is suspended by the federal Bankruptcy Law must provide for the discharge of the debtor." Greene v. Rice, (1919) 32 Idaho 504, 186 Pac. 249, holding further that an act is not an insolvency law because it contains a provision that in case of an attachment "any creditor of the defendant, who, within sixty days after the first posting and publication of such notice shall commence and prosecute to final judgment his action for his claim against the defendant, shall share pro rata with the attaching creditor in the proceeds of defendant's property where there is not sufficient to pay all judgments in full against him." Raising question. The contention that a state insolvency law is superseded by the federal Bankruptcy Act cannot be raised for the first time on a motion for a rehearing in the appellate court. Driver v. Carey, (Ark. 1920) 220 S. W. 667. Vol. I, p. 511, sec. 1a (15). [First ed., 1912 Supp., p. 465.] Inability to meet obligations.—A debtor is insolvent when the aggregate of his property shall not, at a fair valuation, be sufficient in amount to pay his debts (3 R. C. L. p. 275, 98), and not when he is unable to meet his obligations as they mature in the ordinary course of business. Schuette v. Swank, (1920) 265 Pa. St. 576, 109 Atl. 531. Evidence of facts constituting insolvency. -"Direct and detailed evidence of the facts constituting insolvency is not essential. Owing to its nature, insolvency is not always susceptible of direct proof. It may, and in many cases must, be proved by the proof of other facts, from which the ultimate fact of insolvency may be presumed or inferred." Rosenberg v. Semple, (C. C. A. 3rd Cir. 1919) 257 Fed. 72, 168 C. C. A. 284. Vol. I, p. 515, sec. 1a (23). [First ed., 1912 Supp., p. 515.] Who are secured creditors.- Creditors who have furnished materials to a bankrupt and who have served attested accounts on the owners, have recorded their claims, and are also protected by surety bonds under the provisions of state statutes, are secured creditors within the meaning of this section. In re Ferrand, (E. D. La. 1920) 263 Fed. 908. Vol. I, p. 516, sec. 2. [First ed., 1912 Supp., p. 469.] Right to exercise original jurisdiction.To same effect as original annotation, see In re Vadner, (D. C. Nev. 1918) 259 Fed. 614, holding that the jurisdiction of the bankruptcy court is exclusive but that it does not extend to all suits, at law or in equity, affecting a bankrupt's estate. Equitable jurisdiction. To same effect as original annotation, see Martin v. Oliver, (C. C. A. 8th Cir. 1919) 260 Fed. 89, 171 C. C. A. 125; In re De Ray, (C. C. A. 6th Cir. 1919) 260 Fed. 732, 171 C. C. A. 470, holding that a bankruptcy court has jurisdiction to set aside an allowance for services and expenses of an attorney of a trustee, when it satisfactorily appears that the allowance was procured through fraud. Under amendment of 1910.-A bill in equity by a trustee in bankruptcy to recover property conveyed in fraud of the Bankruptcy Act may be entertained by the district court, and since the amendment of the Bankruptcy Act by the Act of June 25, 1910 (1 Fed. Stat. Ann. (2d ed.) 504, note) the bankruptcy court has jurisdiction of a suit to recover a preference regardless of the amount involved or the citizenship of the parties. Gooch v. Stone, (C. C. A. 6th Cir. 1919) 257 Fed. 631, 168 C. C. A. 581. The equity rules of the Supreme Court are not rules of court affecting the administrative work of bankruptcy. In re Hughes, (C. C. A. 2d Cir. 1919) 262 Fed. 500. Election of directors of corporation to choose bankruptcy, instead of state, court for winding up of affairs. The fact that the directors of a corporation choose a bankruptcy court in which to wind up its affairs in preference to having a state court appoint a receiver for it, is not a fraud, and does not warrant the bankruptcy court in refusing jurisdiction. In re Dressler Producing Corp., (C. C. A. 2d Cir. 1919) 262 Fed. 257. Vol. I, p. 521, sec. 2 (2). [First ed., 1912 Supp., p. 472.] Jurisdiction of court. Where a creditor submits his claims to the bankruptcy court and consents to a determination of their validity by the court, he is bound by its decision, and if ordered to repay money paid to him on the claims, he must do so. Commercial Security Co. v. Holcombe, (C. C. A. 5th Cir. 1920) 262 Fed. 657. Vol. I, p. 522, sec. 2 (3). [First ed., 1912 Supp., p. 472.] Receiver's powers and duties in general Right to property consigned to bankrupt.— 66 A receiver in bankruptcy has the right to take property consigned to the bankrupt from a carrier on its arrival at its destination, and such taking ends the right of stoppage in transitu by the consignor. In re Arctic Stores, (D. C. N. J. 1919) 258 Fed. 688, wherein it was said: During the time intervening between the adjudication and the qualification of the appointed trustee, the title, while nominally in the name of the bankrupt, was in custodia legis, awaiting administration. The receiver from his appointment was not only the proper person, but the only person, until the appointment and qualification of the trustee, who could legally take possession of this pulp and the other property of the bankrupt. He might properly be held to be the legal successor in interest of the buyer,' within the meaning of the New Jersey Uniform Sale of Goods Act, sec. 70, and whose taking property from a carrier ends the transit under section 58 of that act. However, and regardless whether that be so, the receiver's conduct in thus taking the pulp must be treated as in the due administration of the bankruptcy law and on behalf of the trustee to be appointed. 66 Upon such appointment the trustee's right to the possession of such pulp would relate back to the time the receiver took it over. "To accept petitioner's contention that there was no one between the time of adjudication and the qualification of the trus tee to do any act either on behalf of the bankrupt, who by the adjudication was shorn of all power to do anything in respect to the property but recently subject to its dominion, or of the trustee, who could not be appointed for at least 11 days, and might not be for several months, after the adjudication, is to hold that there is a hiatus in the administration of bankruptcy estates during which certain creditors might secure a preference over other creditors, a bare statement of which is sufficient to reject such contention. "That the receiver in bankruptcy has the right to take property from a carrier on its arrival at its destination, and that such taking ends the right of stoppage in transitu, has been held by the following cases: In re Allen (D. C. M. D. Pa.) 178 Fed. 879, 24 Am. Bankr. Rep. 574; In re White (D. C. M. D. Pa.) 205 Fed. 393, 29 Am. Bankr. Rep. 358. This was also the view of District Judge Chatfield in Re Darlington Co. (D. C. E. D. N. Y.) 163 Fed. 3S5, 20 Am. Bankr. Rep. 800. In this connection see also Conyers v. Ennis, 6 Fed. Cas. No. 3,149, and Millard v. Webster, 54 Conn. 415, 8 Atl. 470. "From the foregoing it follows that whether the right of stoppage in transitu be held to have ended on the arrival of the car at its billed destination, or upon the removal of its contents by the receiver, the petitioner's claim that it is exclusively entitled to the proceeds of the sale of the pulp must be denied, as its notice to stop delivery was not given until after the last of these two acts had taken place." Vacation of order appointing receiver on application of state receiver.- Where directors of a corporation, notwithstanding the issuance of an injunction by a state court enjoining them from exercising any of the privileges and franchises of the corporation and appointing a receiver, file a voluntary petition in bankruptcy in behalf of the corporation, and the referee in bankruptcy also appoints a receiver, and it is represented that the appointment of the federal receiver is contrary to the general practice of the federal courts in the district of his appointment, the receiver appointed by the state court will be directed to apply to the judges of the federal court to vacate the order appointing the receiver, and will be directed until such application can be made to retain control of the assets. Cavagnaro v. Indian Tire, etc., Co., (1919) 90 N. J. Eq. 532, 107 Atl. 643. Vol. I, p. 529, sec. 2 (7). [First ed., 1912 Supp., p. 476.] Recovery of concealed property after bankrupt's discharge. Where a bankrupt's estate is closed without a final meeting of his creditors on ten days' notice as required by sections 55f and 58 of the Bankruptcy Act, such closing is void and the estate remains open. Accordingly, where after the bankrupt's discharge it is discovered that he has concealed assets from his trustee, the latter may recover them, although because of lapse of time the court has no longer power to revoke the discharge and criminal prosecution against the bankrupt for such concealment is barred. In re Levy, (E. D. Pa. 1919) 261 Fed. 432, wherein the court said: "The question whether the trustee should have leave to file an amended petition before the referee depends upon whether, the estate never having been technically closed, the referee, after the bankrupt's discharge, has ju risdiction in a summary proceeding to make an order upon the bankrupt or upon the Standard Jobbing Company to pay over the sums in their possession or control belonging to the bankrupt estate, for it would be of no avail otherwise to proceed further. "It must be determined therefore whether the discharge of the bankrupt has any other effect than that included within the definition of section 1, or that declared by section 17 of the Bankruptcy Act. The definition in section 1 (12) is: "Discharge' shall mean the release of a bankrupt from all of his debts which are provable in bankruptcy, except such as are excepted by this act.' "Section 17, as amended March 2, 1917 (39 Stat. L. 999, c. 1) provides that a discharge in bankruptcy shall release a bankrupt from all of his provable debts, except such as are therein mentioned. Nowhere in the Bankruptcy Act is there any express limitation upon the power of the court to make and enforce an order upon a bankrupt to pay over money or to turn over other assets which are in his possession or control, while the estate remains open. "For fraudulent concealment of assets from the trustee before discharge, he is subject to the penalty of refusal of his dis charge and, after discharge, to revocation of the discharge if applied for within one year (section 15). This period had elapsed before the petition to reopen the estate was filed and presumably before the trustee had knowledge of the alleged concealment. "Section 29b (1) prescribes punishment by imprisonment for concealing while a bankrupt or after his discharge from his trustee any of the property belonging to his estate in bankruptcy subject to the limitation in paragraph (d), by which criminal proceedings are barred. "Does the fact that the bankrupt has been discharged from his debts, and that the court has no longer power to revoke the discharge, and that criminal prosecution is barred, exempt him from the jurisdiction of the court through summary proceedings to order him to pay over money in his possession or within his control which is part of his estate in bankruptcy? "On adjudication, title to the bankrupt's property became vested in the trustee (sections 21e, 70), with actual or constructive possession, and placed in the custody of the bankruptcy court, and the court may put the trustee in actual possession, where possession is withheld by the bankrupt or one not claiming adversely to him. This proposition is decisively settled in Mueller v. Nugent, 184 U. S. 1, 22 Sup. Ct. 269, 46 L. Ed. 405. In that case the order was made against Nugent upon the ground that the property was in his possession as the bankrupt's agent. If the bankrupt had already been discharged, could Nugent have pleaded the discharge as a bar to the jurisdiction of the court to compel him to surrender property the title to which was by law vested in, and which was in constructive possession of, the trustee, and in the custody of the bankruptcy court? Manifestly not, unless title in the trustee lapses upon the discharge of the bankrupt. If title continues in the trustee, then, while the estate is still open, jurisdiction of the court to cause the estates of bankrupts to be collected, and to determine controversies relating thereto (section 2 not [7]), is to be rendered nugatory through the concealment by the bankrupt of his property, even though he be successful in continuing its concealment until by limitation of law he is freed of indebtedness to creditors and immune from criminal prosecution. He does not hold concealed property as a debt from which his discharge has freed him, but holds it without right against the trustee having title not divested by the bankrupt's discharge." Petition for payment of concealed assets. -A petition by a trustee in bankruptcy for an order compelling the bankrupt to pay to him a certain amount of money alleged to been concealed, is insufficient when unsupported by any averment or proof of possession or control of the money by the bankrupt. In re Levy, (E. D. Pa. 1919) 259 Fed. 316. Vol. I, p. 531, sec. 2 (8). [First ed., Similarly, a restraining order issued with In Who may apply for reopening.- Creditors of a bankrupt, who have proved claims against his estate, may apply for a reopening of it on the ground that unadministered assets of the estate have been discovered. re Levy, (E. D. Pa. 1919) 259 Fed. 314. In denying a motion to vacate the order permitting the reopening, the court said: "The finding upon which the order wa: predicated was that unadministered assets of the estate had come to light. The peti tion to vacate is made on behalf of the bankrupt. He was granted his discharge. The prayer of his petition is based upon the averments that the order was made without notice to him, and that it was made upon the petition of persons not creditors of the estate. The latter averment is in turn based upon the distinction that, although they were at one time creditors of the bankrupt, having not only provable but proved claims, yet as the bankrupt had been granted his discharge he had ceased to be a debtor, and ex vi termini they had ceased to be creditors. It is, of course, not denied that they have an interest in the assets of the bankrupt estate, but the distinction made is fortified by the further distinction that they have such interest qua owners, but not qua creditors. The latter distinction may be accepted without in any way carrying the consequence of a denial of the right of such creditors to apply for the reopening of the case. The attempt to distinguish between the status of a creditor before and after discharge may be met with the comment that they are creditors, within the meaning of and as defined in the bankruptcy statute, and with the further comment that the distinction sought to be made is for present purposes of no practical value." Procedure on reopening. Where a bankrupt estate is reopened because of an alleged concealment of assets of the estate by the bankrupt, and the matter is referred to a referee, the power of the referee is confined to such procedure as will enable the trustee to collect and distribute unadministered assets. This includes authority to pro ceed by plenary suit but not by summary order upon the bankrupt. In re Levy, (E. D. Pa. 1919) 259 Fed. 314. Vol. I, p. 535, sec. 2 (13). [First an con ed., 1912 Supp., p. 479.] Violation of restraining order as tempt. Where after the filing of a petition in bankruptcy, the bankruptcy court issues order restraining the sale of certain property of the bankrupt under an execution on a judgment by a state court, a sale of such property thereafter is a contempt, although the property has been set aside to the bankrupt as exempt and in the judgment he has waived his right to exemption. In re Braun, (M. D. Pa. 1919) 259 Fed. 309. Vol. I, p. 535, sec. 2 (15). [First ed., 1912 Supp., p. 479.] Power to vacate orders. To same effect as original annotation, see In re De Ray, (C. C. A. 6th Cir. 1919) 260 Fed. 732, 171 C. C. A. 470, holding that an order allowing a claim for compensation to the attorney of a trustee in bankruptcy might be vacated before the closing of the estate. Vol. I, p. 538, sec. 2 (20). [First ed., 1912 Supp., p. 480.] Bill to enjoin creditors not appearing in bankruptcy proceedings from suing in an other court for fraudulent representations.— A decree in bankruptcy proceedings which confirmed a composition agreement by a bankrupt partnership, and provided that one of the partners, who asserted that he was but a special partner, should be released, upon compliance with the terms of such composition, from any further liability to the receiver of the estate, and dismissed petitions to have him declared liable as a general partner, only determines against everyone that his property shall not be administered in the bankruptcy proceedings, and does not give ancillary jurisdiction to the bankruptcy court of a bill to enjoin creditors who did not appear in the bankruptcy proceedings, assent to the composition, or attempt to prove a claim, from bringing suit against him in another Federal district court, based on grounds of fraudulent representations believed to be true until after such decree, although such suit can only be maintained on the theory that he is liable as a general partner. Poll . McCabe, (1919) 250 U. S. 573, 40 S. Ct. 43, 64 U. S. (L. ed.) affirming (C. C. A. 2d Cir. 1919) 256 Fed. 512, 168 C. C. A. 18. Vol. I, p. 541, sec. 3a (1). [First ed., 1912 Supp., p. 481.] Absence of fraudulent intention - Transfer of exempt property.— Fraudulent intent cannot be predicated upon a transfer by a bankrupt of exempt property. Marine Nat. Bank . Swigart, (C. C. A. 6th Cir. 1920) 262 Fed. 854. Vol. I, p. 544, sec. 3a (2). [First ed., 1912 Supp., p. 483.] Preferences in general. To same effect as original annotation, see In re Jones, (N. D. N. Y. 1919) 259 Fed. 927. Payment as preference Payment of claims of stockholder.- Where the owner of the entire capital stock of a corporation transfers all of its assets to himself in payment of his claims against it, leaving other debts of the corporation unpaid, the transfer is a preference and is an act of bankruptcy within the meaning of this section. Boston West Africa Trading Co. v. Quaker City Morocco Co., (C. C. A. 1st Cir. 1919) 261 Fed. 665, affirming (D. C. Mass. 1919) 255 Fed. 924. Necessity of intent to prefer - Intent is that of debtor.- To same effect as original annotation, see In re Jones, (N. D. N. Y. 1919) 259 Fed. 927, wherein it was said: It is immaterial in this proceeding whether or not the bank and Mrs. Bard knew Jones was insolvent, or whether they had reasonable cause to believe he was insolvent, and that his transactions would result in a preference. If Jones knew he was insolvent, and if he intended to prefer Mrs. Bard, he committed an act of bankruptcy." Vol. I, p. 555, sec. 3a (4). [First ed., 1912 Supp., p. 488.] II. APPOINTMENT OF RECEIVER OR TRUSTEE (p. 558) The word "applied," as used in this section, does not mean 66 consented." Accordingly, where a bankrupt did not apply for the appointment of a receiver but merely consented to the application of his creditors for such an appointment, which was not made, he cannot be regarded as having committed an act of bankruptcy in violation of this paragraph. In re Big Pines Line, etc., Co., (S. D. Cal. 1919) 257 Fed. 141. The court said: "The petitioning creditors desire the court to hold that the word 'applied means applied for or consented to the appointment of a receiver. The alleged bankrupt here did nothing in that case but consent to the appointment of a receiver. If Congress meant that if a person consented to the appointment of a receiver, it should be made an act of bankruptcy, it might easily have so stated. The cases relied upon by the creditors are cases wherein the application for a receiver was made on behalf of the bankrupt, or where the bankrupt actually petitioned for the appointment of a receiver." What constitutes application for receiver. -The fact that a corporation in its answer to a bill of complaint asking for the appointment of a receiver, admits the allega tions in the bill and joins in the application for the appointment of a receiver, is not tantamount to an application for a receiver under this section, where the allegations in the bill show that the corporation is solvent and that the application is made for the purpose of averting insolvency. In re Conrecticut Brass, etc., Corp., (D. C. Conn. 1919) 257 Fed. 445, wherein, on motion to dismiss an involuntary petition in bankruptcy against a corporation based on the above fact, the court said: "The argument of the petitioning creditors against the motion resolved itself into the proposition that, as the alleged bankrupt had joined in the application for the appointment of the receivers, and had admitted in its answer the allegations of the bill of complaint, such conduct is tantamount to applying for a receiver under the Bankruptcy Act, and numerous cases are cited to support this proposition. "A further reason advanced against the granting of the motion is based on the claim that the allegations set forth in the involuntary petition, and quoted supra, are sufficient to bring the petitioners within the meaning of the Bankruptcy Act. We will dispose of these contentions in their order. Pacific Hardware & Steel Co., 177 Fed. 825, 101 C. C. A. 39; Doyle-Kidd Dry Goods Co. v. Sadler-Lusk Trading Co. (D. C.) 206 Fed. 813. "An examination of all of these cases shows that the decisions there reached were based upon an allegation of insolvency, or it appeared that the person or corporation. was insolvent, and for that reason joined in the application for the appointment of a receiver. None of the cases cited are cases involving an equitable receivership, where it appears on the face of the bill that the assets are in excess The of liabilities. cases cited and relied upon in support of the petitioning creditors' argument are not apposite to the case at har. Here we have an equitable receivership, which is intended to avert insolvency. The allegations in the bill show, not insolvency, but solvency. It would be going too far to say that a solvent corporation, at least solvent so far as the record shows, committed an act of bankruptcy by applying for the appointment of a receiver, or joining in an application for the appointment of a receiver, simply because it had not the ready cash to meet all its obligations and immediate demands as they mature in the ordinary course of business, and because creditors were threatening attachments. "The authorities are too clear and conclusive to discuss the question further, as the differentiation between the two sets of factsi. e., solvency and insolvency is so emphasized as to make it clear to him who reads. In re Douglas Coal & Coke Co. (D. C.) 131 Fed. 769; In re Wm. S. Butler & Co., 207 Fed. 705, 125 C. C. A. 223. "The law governing this situation is settled. Nowhere is it more clearly stated than by Judge Hazel in Re Edward Ellsworth Co. (D. C.) 173 Fed. 699. On page 700 he said: The inquiry presented is whether the corporation proceeded against, by admitting the material allegations of the bill in the equity action and joining in the application for the appointment of receivers, can be held in a legal sense to have applied therefor pursuant to section 3a, subd. 4, of the Bankruptcy Act, as amended by Act February 5, 1903, ch. 487, § 2, 32 Stat. L. 797. If the company, while insolvent, had voluntarily brought an action to wind up its affairs for the benefit of its creditors, and had applied for the appointment of receivers to take charge of its property, the superior right of the bankruptcy court could not safely be questioned; but the interposition of an answer in an action brought by a contract creditor, admitting therein the truth of the allegations of the bill and joining in the prayer for relief, is not believed to be the equivalent of the term “being insolvent, applied for a receiver or trustee for its property." In the equity action the complainants applied for receivers on the ground that the Edward Ellsworth Company was unable to pay its debts as they matured, and |