Chap. XXXI.

decree to set it aside (q). Where the settlor has subsequently mortgaged all his personal estate, the chattels which are the § 1 (iii). subject of the fraudulent settlement do not, upon its being declared void, vest in the mortgagee (r). He has only the right of a general creditor, and must take independent proceedings to have execution of the property (8).

Debt of ancestor or testator.

Action to set aside conveyance.

Who may bring action.

Form of decree.

The statute applies where the debts were contracted not by the party making the conveyance, but by the ancestor from whom he derived the estate (t); and a fraudulent conveyance may be made by an executor as well as by an heir (u).

An action by a creditor to set aside a settlement under this statute is not affected by the insolvency of the settlor subsequent to the commencement of the action (x). If the settlor has become bankrupt, the trustee in bankruptcy is the proper person to bring the action (y). And if it is right that the particular transaction should be investigated, the action, though dismissed, will be dismissed without costs as against the trustee (z).

Any particular creditor, including a mortgagee, whether legal or equitable, may take proceedings to set aside a voluntary settlement (a); but it does not appear to be free from doubt whether a creditor, even if he is a mortgagee, can after the bankruptcy of the debtor maintain an action to set aside a conveyance made by the debtor prior to the bankruptcy, on the ground that such conveyance is fraudulent within the statute, or whether the right of action in such a case is in the trustee in bankruptcy only (b).

The form of the decree is that the deed be declared void against the creditors, and that the defendants join in all necessary acts for raising the money for the creditors (c); and the decree must be on behalf of all the creditors (d).

(a) Reese River Silver Mining Co. v. Atwell, 7 Eq. 347; Goldsmith v. Russell, 5 De G. M. & G. 547. But see Lister v. Turner, 5 Ha. 281.

(r) Barton v. Vanheythusen, 11 Ha. 126.

(s) Reese River Silver Mining Co. v. Atwell, sup.; Lister v. Turner, sup.

(t) Apharry v. Bodingham, Cro. Eliz. 350; Gooch's Case, 5 Rep. 60. See Richardson v. Horton, 7 Beav. 112.

(u) Doe v. Fallows, 2 Cr. & J. 481; 2 Tyrw. 460.

(x) Goldsmith v. Russell, 5 De G. M.

Chap.

XXXI.

§ 2 (i).

SECTION II.

OF THE AVOIDANCE OF MORTGAGES IN BANKRUPTCY.

are acts of

i.-Introductory Remarks.-A conveyance by way of mortgage Fraudulent which is "fraudulent" within the meaning of the statute 13 conveyances Eliz. c. 5, is also void under the Bankruptcy Act, 1883 (e), and bankruptcy. such conveyance will be liable to be set aside accordingly in favour of the general creditors of the mortgagor if any proceedings in bankruptcy should be founded upon such act or any other act of bankruptcy committed either before or after the conveyance within the limit of time to be presently stated. But a conveyance may be good as against an execution creditor under the statute of Elizabeth, but may, nevertheless, be bad as against the trustee in bankruptcy of the mortgagor.

able in bank

If a deed executed by a debtor is liable to be set aside on the Conveyance ground that it is within the mischief of the bankruptcy law, it unimpeachwill apparently become valid and unimpeachable as against the ruptcy after trustee in bankruptcy after the lapse of three months from its three months. execution, if during that period no proceedings in bankruptcy are taken against the debtor (ƒ), independently of the question whether or not it may be void as against an execution creditor under the statute of Elizabeth, or generally as fraudulent against creditors.

property.

It has been seen that a conveyance by way of mortgage of a Mortgage of person's whole property, or of the whole with a merely colour- debtor's whole able exception, and à fortiori such a conveyance of part only of his property to secure an existing debt, is not necessarily void under the statute of Elizabeth (g); but any such conveyance, if "fraudulent,” or amounting to "fraudulent preference" within the meaning of the bankruptcy law, is an act of bankruptcy and liable to be avoided accordingly.

ii.-Fraudulent Conveyances are Acts of Bankruptcy.-The Bankruptcy Act, 1883. enactments governing the question how far mortgage securities given by a debtor are voidable in the event of the subsequent

Chap. XXXI.

§ 2 (ii).

Acts of bankruptcy.

Conditions on

bankruptcy of the mortgagor by his trustee, are the following sections or parts of sections of the Bankruptcy Act, 1883 (h).

Sect. 4. "A debtor commits an act of bankruptcy in each of the
following cases :-
(a) If in England or elsewhere he makes a conveyance or assign-
ment of his property to a trustee or trustees for the benefit
of his creditors generally;

(b) If in England or elsewhere he makes a fraudulent con-
veyance, gift, delivery, or transfer of his property, or of
any part thereof;
(c) If in England or elsewhere he makes any conveyance or
transfer of his property or any part thereof, or creates any
charge thereon, which would under this or any other Act
be void as a fraudulent preference if he were adjudged
bankrupt."

Sect. 6. "A creditor shall not be entitled to present a bankruptcy which creditor petition against a debtor unless :

may petition.

Relation back of trustee's title.

Conveyance not avoided unless fraudulent by English law.

(b) The act of bankruptcy on which the petition is grounded has occurred within three months before the presentation of the petition."

Sect. 43. "The bankruptcy of a debtor, whether the same takes place on the debtor's own petition or upon that of a creditor or creditors, shall be deemed to have relation back to, and to commence at, the time of the act of bankruptcy being committed on which a receiving order is made against him, or, if the bankrupt is proved to have committed more acts of bankruptcy than one, to have relation back to, and to commence at, the time of the first of the acts of bankruptcy proved to have been committed by the bankrupt within three months next preceding the date of the presentation of the bankruptcy petition; but no bankruptcy petition, receiving order, or adjudication shall be rendered invalid by reason of any act of bankruptcy anterior to the debt of the petitioning creditor."

It will be observed that sect. 4 renders void the conveyances and assignments specified in clauses (a), (b), and (c) if made by a debtor" in England or elsewhere." Such instruments will, therefore, amount to acts of bankruptcy if made anywhere abroad by a person subject to English law (i). But a conveyance of property situate abroad out of the jurisdiction of the English Courts cannot defeat or delay creditors so as to constitute an act of bankruptcy; and a conveyance of property in England by a domiciled foreigner in his own country which can operate only according to the law of that country, is not within the section. "The section clearly means, and has always been interpreted as meaning, fraudulent by the law of England, and,

(h) 46 & 47 Vict. c. 52.

(i) Exp. Blain, Re Sawers, 12 Ch. D. at p. 532.

therefore, cannot properly apply to a conveyance which is executed in and is to operate according to the law of a foreign country" (k).

Chap. XXXI.

§ 2 (ii).

an act of

and void.

Sect. 4, though it makes "fraudulent conveyances" available Fraudulent acts of bankruptcy, does not, nor does any other section of the conveyance is Act, expressly render such conveyances void as against the bankruptcy, trustee, as is the case with regard to conveyances amounting to "fraudulent preferences" within the meaning of sect. 48. But the result of the decisions is such as to make it clear that, if a conveyance by a debtor is a "fraudulent conveyance" so as to constitute an act of bankruptcy, it will be invalid as against the trustee, unless saved by lapse of time (7).

conveyance

months before

Further, the Act nowhere expressly says that a "fraudulent Fraudulent conveyance," to be impeachable as being an act of bankruptcy, not avoided must have been made within three months before presentation if made three of a petition on which the debtor is adjudicated bankrupt, as is petition. provided by sect. 48 with regard to "fraudulent preferences." But, having regard to the language of sects. 6, 43, it seems a necessary inference that a conveyance made before the commission of such act will be valid as against the trustee; and the question has been so determined by judicial decision. So, where a debtor assigned all his estate and effects by way of security for a sum then due, and a small further advance, and became bankrupt seventeen months afterwards, it was held, independently of the question as to whether the assignment was saved by the present advance (m), that the lapse of time which had occurred since the assignment rendered the deed valid as against the trustee in bankruptcy, though it might otherwise have been impeachable by him (»). So a bill of sale was upheld, though a liquidation supervened within the statutory period, where such bill was given in substitution for a previous bill of sale (0).

veyance is

In the Bankruptcy Acts prior to 1869, a conveyance must, so Question as to be available as an act of bankruptcy, and impeachable whether conaccordingly, have been made by a debtor fraudulently "with fraudulent in bankruptcy is intent to defeat or delay his creditors"; but in the Act of that one of law.

(k) Exp. Crispin, L. R. 8 Ch. 374; Re A. B. & Co., (1900) 1 Q. B. 541.

(1) Woodhouse v. Murray, L. R. 2 Q. B. 638; Re Colemere, L. R. 1 Ch. 128, at p. 134; Re Nurse, Exp. Foxley, L. R. 3 Ch. 515, 519; Re Wood, L. R. 7 Ch. 302.

(m) See as to this, infra.

(n) Allen v. Bonnett, L. R. 5 Ch. 577. See also Mercer v. Peterson, L. R. 2 Ex. 304; Jones v. Harber, L. R. 6 Q. B. 77.

(0) Lomax v. Buxton, L. R. 6 C. P. 107.

Chap. XXXI.

§ 2 (ii).

Circumstances of particular case must be

considered.

Mortgage of

whole of debtor's pro

"fraudu

year these words were omitted from the definition of
lent conveyance," and the omission has been continued in the
present Act. The effect of the omission, however, has not been
to change the rule formerly prevailing in bankruptcy, that the
question whether a conveyance was fraudulent against creditors
was one of law, not of fact; the words were omitted as super-
fluous and misleading, inasmuch as the Court or a jury were by
that rule sometimes compelled to find fraudulent intent, where,
in fact, there was no such intent (p).

In determining the conclusion of law whether a mortgage security given by a person who afterwards becomes bankrupt is impeachable as a "fraudulent conveyance," the facts of the particular case must be examined. "In each case, looking at all the circumstances, you have to answer these questions: Does the assignment include all the property, or is there a substantial exception? Is it wholly to secure a pre-existing debt? And, if there is a further advance, is it a substantial one?" (q). The test is whether the lender made such advance to enable the debtor, if a trader, to carry on his business, and with a reasonable belief that the advance would have that effect (r).

A mortgage of the whole of the debtor's property, or of the whole with a colourable exception, whether for the perty to secure benefit of a particular creditor or creditors to the exclusion of existing debt is void. others (s), or for the benefit of his creditors generally (t) to secure an existing debt or debts, is an act of bankruptcy, and void accordingly as against the trustee.

Motives of parties immaterial.

Such a mortgage in favour of a particular creditor or several creditors is void, though no fraudulent motive on the part of any of the parties is proved, as the fraudulent intent will be imputed to the mortgagee from the necessary and obvious result of the transaction being to defeat or delay other creditors (u); and it makes no difference in this respect whether the mortgagor is a trader or non-trader (x).

(p) Re Wood, L. R. 7 Ch. 302, at p. 307.

(a) Exp. King, Re King, 2 Ch. D. 256, at p. 262. See Admor.-Gen. of Jamaica v. Lascelles, (1894) A. C. 135, at p. 139.

(r) Exp. Johnson, 26 C. D. 338; Admor.-Gen. of Jamaica v. Lascelles, (1894) A. C. 135.

(s) Re Wood, L. R. 7 Ch. 302; Exp. Trevor, 1 Ch. D. 297; Re Jukes, (1902) 2 K. B. 58. See also Woodhouse v.

Murray, L. R. 4 Q. B. 27; Re Nurse,
Exp. Foxley, L. R. 3 Ch. 515.

(t) Bankruptcy Act, 1883, s. 4 (a), ante, p. 600. See Re Wood, sup.

(u) Exp. Ellis, 2 Ch. D. 797, C. A. See Young v. Fletcher, 3 H. & C. 732, post, p. 604 (which was a case of a mortgage of part only of the debtor's property to secure an existing debt, but it appeared that the mortgagee was aware that the result would be to delay creditors).

(x) Re Wood, L. R. 7 Ch. 302. See