Dean v. Davis, 242 U.S. 438 (1917)

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Dean v. Davis

No. 70

Argued November 6, 7, 1916
Decided January 8, 1917
242 U.S. 438

APPEAL FROM THE CIRCUIT COURT OF APPEALS

FOR THE FOURTH CIRCUIT

Syllabus

A transfer of property by an insolvent, made to secure a contemporaneous loan of money which the lender advances, and the insolvent obtains and uses, for the discharge of a preexisting debt of the insolvent to a third party, in which the lender has no interest, is not a preference of the lender within § 60b of the Bankruptcy Act, as amended February 5, 1903, 32 Stat. 797, 800.

A transfer, the intent or obviously necessary effect of which is to deprive creditors of the benefits sought to be secured by the Bankruptcy Act, "hinders, delays, or defrauds creditors" within the meaning of § 67e.

An insolvent borrowed money of a relative and secured it by a contemporaneous mortgage of all his property, which was recorded. The money was sought, advanced, and used to satisfy one of his preexisting debts and thus enable him to escape a criminal prosecution. Mortgagee and insolvent both knew of the insolvency, and the circumstances were such that both must. have anticipated the suspension of business and bankruptcy which followed the recording of the mortgage. Held that these facts warranted the district court and circuit court of appeals in concluding that the insolvent intended to defraud his creditors within the meaning of § 67e and that the mortgagee was not a purchaser or lienor in good faith (§§ 67e, 67d). Van Iderstine v. National Discount Co., 227 U.S. 575, 582; Coder v. Arts, 213 U.S. 223, 244.

A decree avoiding a transfer a fraudulent will not be disturbed upon the ground that it exceeds the pleading where the bill, though attacking the transfer mainly as an unlawful preference, contains enough, with the answer, to present the issue of fraud, where that issue was fully tried, and the question of variance is first raised in this Court.

212 F. 88 affirmed.

The case is stated in the opinion.