course of trade are protected.1 In this country, intent is a question of fact; and while a payment in the ordinary course of trade will rarely be a preference, yet it may happen to be so in some cases.2 On the other hand, an act done out of the usual course of the debtor's business is, by most of the statutes, and would be by decision, notice to the preferred creditor that something may be wrong.3

The course of business is a question of fact; but as a great many cases are decided in equity, the decisions of the courts have become precedents. To have a usual course of business a man must be in some business (though it need not be a trade, strictly so called), and the act must have some relation to his business. It has been held not to be out of the course of business of a trader to sell his dwelling-house, nor of a railroad to mortgage its franchise and rolling-stock to secure all its unsecured creditors; 5 but it is so for a manufacturer to sell his raw materials, for a wheelwright to mortgage his house, which is substantially his whole property, to secure a single existing creditor; so of payment in something not money.

7

A pay

ment after a general suspension is out of course, because the business has ceased to have due course, or giving power to sell for a debt not due.10 The most common cases are those in which a retail trader has sold or mortgaged his whole stock of goods, which is usually held to be out of due course,11 though it is a question of fact in each case, as to the course of trade of the particular debtor, of which general usages in the same

1 § 65. [A trader may pay his paper at maturity, as without this he could not continue in business. Re Clay, 3 Manson, 31; Re Eaton (1897), 2 Q. B. 16.]

2 See Re Seeley, 19 N. B. R. 1, Fed. Cas. No. 12,628. [It is for the jury to say whether a transfer not in the usual course of business is a preference. Haas v. Whittier, 97 Cal. 411.]

482.

See the following sections.

6 Schrenkeisen v. Miller, 9 Ben. 55, Fed. Cas. No. 12,480.

7 Nary v. Merrill, 8 Allen, 451, as explained in 9 Allen, 482.

8 Re Kingsbury, 3 N. B. R. 317, Fed. Cas. No. 7816.

9 Markson v. Hobson, 2 Dill. 327, Fed. Cas. No. 9099.

19 Robertson v. Todd, 31 Conn. 555. 11 Walbrun v. Babbitt, 16 Wall. 577; Swan v. Robinson, 5 Fed. Rep. 287;

4 Pearson v. Goodwin, 9 Allen, Judson v. Courier Co., 15 Fed. Rep. 541; Killam v. Peirce, 153 Mass. 502;

5 Re Union Pac. R. R. Co., 10 N. B. R. Tapscott v. Lyon, 103 Cal. 297; Che 178, Fed. Cas. No. 14,376. valier v. Commins, 106 Cal. 580.

trade may be evidence, but not detached instances, unless they tend to show a general custom.1

§ 75. Injury to General Creditors; Exempted Property; Liens. The assignees represent the rights of the general creditors, and unless the alleged preference is an injury to them there can be no recovery. Therefore one creditor cannot cause

a preference to be set aside if the only effect will be to benefit him; nor can the assignee bring such an action if it will not benefit the general creditors.2

Thus, if the property conveyed to the defendant is exempted from liability for debts, or would not go to the assignees, because it was the joint property of a firm, and only one partner is bankrupt; or if the payment was a compromise for a less sum than will be paid in bankruptcy; or a conveyance which merely completes a title to property of the debtor which the particular creditor might have enforced by virtue of a lien or charge, legal or equitable, or of a set-off; or payment of a debt, which is privileged in bankruptcy, if there remain assets enough to pay all debts of the same rank; or of a separate debt if the separate estate is solvent.8 In cases of this character the transaction is not voidable by the assignees.

6

But if the exemption of property depends upon some act which the debtor has not done, as the setting aside of certain

1 Otis v. Hadley, 112 Mass. 100; Buffum v. Jones, 144 Mass. 29.

2 Willmott v. Celluloid Co., 31 Ch. D. 125, 34 Ch. D. 147; Ex parte Cooper, L. R. 10 Ch. 510.

3 Re Henkel, 2 Sawyer, 305, Fed. Cas. No. 6362; Rayner v. Whicher, 6 Allen, 292; Grow v. Ballard, 2 N. B. R. 194, Fed. Cas. No. 5848; Schlitz v. Schatz, 2 Biss. 248, Fed. Cas. No. 12, 459; Re Jones, 2 Dillon, 343, Fed. Cas. No. 7445; Rix v. Capitol Bank, 2 Dillon, 367, Fed. Cas. No. 11,869.

4 Brickwood v. Miller, 3 Meriv. 279; Forsaith v. Merritt, 1 Lowell, 336, Fed. Cas. No. 4946; Amsinck v. Bean, 22 Wall. 395; Ex parte Smith, 3 M. D. & De G. 144.

5 Re Hapgood, 2 Lowell, 200, Fed. Cas. No. 6044.

6 Livingston v. Bruce, 1 Blatch. 318, Fed. Cas. No. 8410; Mavor v. Croome, 1 Bing. 261; Thompson v. Beatson, ib. 145; Goodwin v. Sharkey, 80 Penn. St. 149; Kemmerer v. Tool, 81 Penn. St. 467; Ex parte Hibernia Joint Stock Co., 14 Ir. Ch. 113 (that case is not law in Great Britain, but would be so here); Reber v. Gundy, 13 Fed. Rep. 53.

7 Clark v. Sawyer, 151 Mass. 64.

8 Hewitt v. Northrup, 75 N. Y. 506, a contrary decision in Judd v. Gibbs, 3 Gray, 539, is unsound in principle and unjust, and is virtually overruled by Clark v. Sawyer, 151 Mass. 64.

necessaries for the use of his family, and instead of setting them aside he assigns them, the assignment may be a preference.1

So a compromise with creditors is evidence of insolvency, and will be a preference unless the debtor is always ready and able to pay every creditor a proportionate amount, and, probably, unless his assets will pay as much;2 and a conveyance to an execution creditor who had the right to sell the property, but the sale would have been an act of bankruptcy, is an evasion of the law.8

Property may be so settled by a valid arrangement when it is acquired that a class of creditors may have a lawful preference out of it, as where the by-laws of a corporation give the company a lien on the shares for debts due it from the members.4

So, of course, it can never be a preference to procure a debt to be paid or secured by a friend out of his own resources, or by his indorsement or guarantee of the debtor's promise, if the surety receives no indemnity from the debtor's property.5

§ 76. Transfer for Value, etc.—It is not a preference by a debtor, however insolvent, to sell, pledge, or mortgage the whole or any part of his property for a fair present value, if the money is not to be used to give a preference, or for some other illegal payment; nor to exchange securities of equal value;7 nor to compromise doubtful claims or give up doubtful enter

6

1 Rayner v. Whicher, 6 Allen, 292; Nash v. Farrington, 4 Allen, 157; Stevenson v. White, 5 Allen, 148. See La Point v. Blanchard, 101 Cal. 549, and Wyman v. Gay, 90 Maine, 36.

2 Fernald v. Gay, 12 Cush. 596. 3 Ex parte Pearson, L. R. 8 Ch. 667; Woodhouse . Murray, L. R. Q. B. 27; affirming L. R. 2 Q. B. 634; Ex parte Cooper, 10 Ch. D. 313.

4 Hyde v. Woods, 2 Sawyer, 655, Fed. Cas. No. 6975, 94 U. S. 253.

5 Hovil v. Pack, 7 East, 164; Ex parte Green, 1 Dea. & Ch. 230; Sharp v. Phila. Warehouse Co., 10 Fed. Rep. 379; Winslow v. Bliss, 3 Lans. 220; Winsor v. Kendall, 3 Story, 507, Fed.

Cas. No. 17,886; Re Rogers, 8 Morrell,
243.
With the last case compare Re
Snyder, 8 Morrell, 127.

6 Tiffany v. Boatman's Inst., 18 Wall. 375; Coxe v. Hale, 10 Blatch. 56, Fed. Cas. No. 3310; Catlin v. Hoffman, 2 Sawyer, 486, Fed. Cas. No. 2521; Bentley v. Wells, 61 Ill. 59; Re Morrison, 10 N. B. R. 105, Fed. Cas. No. 9839; Piper v. Baldy, 10 N. B. R. 517, Fed. Cas. No. 11,179. See Shears v. Goddard (1896), 1 Q. B. 406.

7 Burnhisel v. Firman, 22 Wall. 170; Sawyer v. Turpin, 2 Lowell, 29, Fed. Cas. No. 12,410; 1 Holmes, 226, Fed. Cas. No. 12,409, 91 U. S. 114; Re Weaver, 9 N. B. R. 132, Fed. Cas. No. 17,307.

prises; nor to return money or property advanced for the purpose of settling the debts, or any other specific purpose, which has failed of effect.2 One application of the principle discussed in this section is that the assignees have no right to avoid a security if the only effect will be to benefit other secured creditors. 8

§ 77. No Defence that Creditor had Security of a Third Person. -If the debtor pays or secures a creditor by money or property of his own, and thus his creditors are injured, it is no defence to an action by the trustee against the preferred creditor that the defendant had security upon the property of a third person, or had solvent indorsers or sureties for his debt. test is injury to the general creditors, not benefit to the defendant. If the assignees avoid the preference, the creditor's rights against the third person will revive,5 because he is the person actually preferred.

The

§ 78. Not a Preference to complete a Transaction. - It is not a preference if the debtor, though insolvent, completes a transaction begun before his failure, as, for example, by indorsing a note which he had pledged, or conveying goods or other property for which he had received the consideration; because the other party has never trusted him as a debtor, but only as an honest man to do a specific thing.

1 Knickerbocker Ins. Co. v. Comstock, 9 N. B. R. 484, Fed. Cas. No. 7879; Miller v. Barlow, L. R. 3 P. C. 733; Re Hamilton, 1 Fed. Rep. 800.

2 Toovey v. Milne, 2 B. & A. 683;

Moore v. Barthrop, 1 B. & C. 5.

3 Ex parte Cooper, L. R. 10 Ch. 510; Darling v. Townsend, 5 Fed. Rep. 176. 4 Groom v. Watts, 4 Ex. 727; Marshall v. Lamb, 5 Q. B. 115; Bartholow r. Bean, 18 Wall. 635; Lawrence v. Graves, 5 N. B. R. 279, Fed. Cas. No. 8138; Sage v. Wynkoop, 16 N. B. R. 363, Fed. Cas. No. 12,215.

5 Pritchard ». Hitchcock, 6 M. & G. 151; Newington v. Levy, L. R. 5 C. P. 607; Petty v. Cooke, L. R. 6 Q. B. 790; Watson v. Poague, 42 Iowa, 582;

National Bank of Australia v. Morris (1892), A. C. 287.

6 Nickerson v. Baker, 5 Allen, 142; Post v. Corbin, 5 N. B. R. 11, Fed. Cas. No. 11,299; Re Perrin, 7 N. B. R. 283, Fed. Cas. No. 10,995; Nicholson v. Schmucker, 81 Md. 459; Williams v. Clark, 47 Minn. 53; Re McKay, 1 Lowell, 561, Fed. Cas. No. 323; Gattman v. Honea, 12 N. B. R. 493, Fed. Cas. No. 5271; Crowell v. Attis, 25 Conn. 301. [So it is not a preference to exchange within the time during which a trustee may upset the transaction a valid security for one given long before, which was void for a technicality. Re Tweedale (1892), 2 Q. B. 216.]

$79. Creditor's Knowledge. The preferred creditor must have reasonable cause to believe the debtor insolvent, and to intend a preference. In most cases a creditor who is paid or secured when he knows the debtor to be insolvent may be presumed to know that he intends a fraud on the act, that is, a preference. But there have been some few cases in which a known insolvency has not been held to prove conclusively a knowledge of intended fraud; as where the creditor did not know there were any other creditors,3 or was misled concerning them. It has been said that knowledge of the fraudulent intent, now required to be proved,5 is substantially the same as the reasonable cause to believe which the statute formerly made sufficient. But this cannot be admitted. It has been repeatedly held that cause to believe is not belief, though, of course, it may in most cases be sufficient evidence of belief. If one passes counterfeit coin, he cannot be convicted of knowledge of its character, unless he had such knowledge. If one buys negotiable paper in good faith, and not knowing that it was stolen, he will hold it, whatever reasons for suspicion he may have had." Where the statute gave an action against a preferred creditor if he had reasonable cause to believe his debtor's insolvency, and another statute debarred a preferred creditor from proving his debt if he had knowledge of the same fact, it was held that a judgment against the creditor in an action to recover the preference was not conclusive against the proof of his debt, because knowledge and reasonable cause to believe were not the same.8

§ 80. Indirect Preferences.

Our statutes avoid conveyances,

etc., made with intent to give a preference "directly or in

1 Beals v. Quinn, 101 Mass. 262; Paige v. Loring, 1 Holmes, 275, Fed. Cas. No. 10,672. This case was taken to Washington, but settled by the parties before it was reached in the Supreme Court. Gibson v. Warden, 14 Wall. 244, 248, per Swayne, J.; Haskin v. James, 96 Cal. 258; Illinois Co. v. Bank, 149 Ill. 450; Act of 1898, § 60 b. See infra, $523.

2 Infra, § 99.