BOWLER v. FIRST NATIONAL BANK.

[21 S. D. 449, 113 N. W. 618.]

BANKRUPTCY - Recording of a Mortgage or Conveyance, When Deemed to be Necessary Within the Meaning of the Clause Avoiding Preferences.-Under that portion of the bankruptcy act declaring that, where a preference consists of a transfer, the period of four months shall not expire until four months after the date of the record or registry of the transfer, if by law such recording or registry is required, a transfer or encumbrance may be avoided by the trustee in bankruptcy, though it was valid between the parties, if it was recorded within such four months, if the recording was necessary to make the transfer or encumbrance effective against any class of persons, as, for instance, purchasers or encumbrancers in good faith and without notice. (pp. 729, 731.)

PLEADING-Averment of Insufficiency of Assets.-An averment that the bankrupt's estate is insolvent and that there is not property enough to pay the general creditors is a statement of facts and not a mere conclusion of law. (p. 731.)

BANKRUPTCY, Action to Set Aside Preferences.-A Demand is not Necessary before bringing an action by a trustee in bankruptcy to set aside a conveyance or mortgage as a preference. (pp. 731, 732.)

ACTIONS, Joinder of Causes of When Against the Same Person as Trustee.-If a mortgage is executed and a conveyance made to a creditor affecting different parcels of real property, one of which is situate beyond the state, one suit may be maintained by the trustee in bankruptcy to avoid both as preferences, under a statute permitting a plaintiff to unite in the same complaint several causes of action, where all arise out of claims against a trustee by virtue of a contract or by operation of law, because the creditor receiving such preferences becomes thereby an involuntary trustee. (p. 732.)

JURISDICTION of the Person, Estoppel to Dony.-A defendant who appears generally in an action is estopped from claiming that the court has no jurisdiction of his person. (p. 733.)

JURISDICTION of Property Situate in Another State.-An action can be maintained in one state by a trustee in bankruptcy to set aside as a preference a conveyance of lands situate in another state, if the court has jurisdiction of the person of the defendant to whom such preference was given. (p. 733.)

Joe Kirby, for the appellant.

Davis, Lyon & Gates, for the respondent.

450 CORSON, J. This action was instituted by the plaintiff as trustee in bankruptcy of the estate of John H. Bruins, a bankrupt, to vacate and set aside a certain mortgage and deed executed by the said Bruins to the defendant bank and recorded within four months preceding the filing of the petition in bankruptcy. A demurrer was interposed to the complaint, stating, in substance: (1) That said complaint does not state facts sufficient to constitute a cause of action; (2) that several causes of action are improperly united; (3) that

as to the second cause of action therein stated the court had no jurisdiction of the person of the defendant nor of the subject 451 matter of the action. The demurrer was sustained, and from the order sustaining the same the plaintiff has appealed.

The plaintiff, in the first paragraph of his complaint, alleges the incorporation of the defendant under the laws of the United States for banking purposes. The plaintiff, in the five following paragraphs, sets out the proceedings taken in the bankruptcy court of South Dakota resulting in the adjudication of the said Bruins as a bankrupt and the appointment and qualification of the plaintiff as trustee in bankruptcy. In the seventh paragraph of the complaint it is alleged that the said John H. Bruins at the time he was adjudged a bankrupt, and for a long time prior thereto, was the owner in fee simple of certain lots in the city of Garretson, in Minnehaha county, of the value of about three thousand dollars, not exempt from execution, but liable to his creditors for the payment of his debts.

The eighth, ninth, tenth, and eleventh paragraphs of the complaint are as follows:

"That on the twentieth day of May, 1905, and within four months next preceding the filing of said petition to have the said Bruins adjudged a bankrupt, and while he, the said John H. Bruins, was insolvent and known to defendant to be such, the said defendant caused to be filed in the office of the register of deeds of Minnehaha county, South Dakota, and recorded, a mortgage theretofore executed by the said John H. Bruins, to the said defendant, upon all the property mentioned in the last preceding paragraph, which mortgage purported to mortgage to the said defendant as mortgagor all of said real estate to secure the payment of the sum of nineteen hundred and eighty dollars and thirty-five cents alleged to be owing from the said John H. Bruins to the said defendant, and which mortgage still remains and appears of record, untransferred and unsatisfied, and that the enforcement of said mortgage by the defendant would work and give a preference to said defendant, over the general creditors of the said bankrupt, and in executing said mortgage the said Bruins intended to create an illegal preference in favor of said defendant.

"That said mortgage heretofore mentioned was not given for a present consideration, and was not accepted nor given in good faith, but was in contemplation and in fraud of the bankrupt act of the United States.

152 "That the said bankrapt's estate is insolvent, and if the said defendant is allowed to enforce the lien of said mortgage and receive the amount thereof from the proceeds of such property, the general creditors of said bankrupt will suffer loss and cannot be paid from said estate in full.

"That said mortgage constitutes of record an apparent lien and encumbrance upon the property above described, and that this plaintiff is unable to sell or dispose of said prop. erty, or convert the same into cash, and will be unable to realize more than a nominal sum out of said property unless said mortgage is, as against him, canceled, set aside, and held to naught."

The plaintiff for a second, further and separate cause of action alleges that he "repeats, reiterates and restates each and all of paragraphs 1, 2, 3, 4, 5, and 6 of the foregoing amended complaint, and now presents and sets forth the same to this court as part of this cause of action, the same as if they were written herein in full." The plaintiff then alleges, in substance, that in July, 1905, and within four months next preceding the filing of said petition, and while the said John H. Bruins was insolvent, and known to the defendant to be such, he was the owner of a tract of land in Pipestone county, Minnesota (describing it), having an interest therein of the value of two thousand dollars; that thereupon, and while the owner of such property as aforesaid, the said Bruins did, for the purpose and with the intent of creating a preference among his creditors in favor of the defendant, convey to the defendant by deed all of said land and premises, which deed was recorded in the office of register of deeds in and for said Pipestone county in said state of Minnesota, causing thereby the title of said premises to appear in the name of the said defendant; that said deed was not given for a present consideration, and was not given in good faith, but was in contemplation and in fraud of the bankruptcy act of the United States; that said bankrupt's estate is insolvent, and if said. defendant is allowed to retain said property there will not be assets enough to pay said bankrupt's debts, and the defendant will receive a preference at the expense of the general creditors of said estate; that said deed constitutes a cloud upon the title and an encumbrance as against the plaintiff on said property; and that the 453 plaintiff will be unable to sell or dispose of said property so as to realize anything herefrom unless said deed is canceled and held for naught, and the said defendant compelled to convey to the plaintiff the title which it received from the said Bruins. The plaintiff con

cludes by praying for judgment that the said mortgage of the said Garretson property be vacated, and that the defendant be required to execute and deliver to the plaintiff a satisfaction or assignment of the same, and that the conveyance of the land before described in Pipestone county be adjudged to convey no title as against this plaintiff, and that the defendant be compelled to reconvey to the plaintiff all of the right, title and interest purporting to have been conveyed to it by the said bankrupt.

Sections 60a and 60b of the bankrupt act of July 1, 1898 (c. 541, 30 Stat. 562 [U. S. Comp. Stats. 1901, p. 3445]), as amended by act of February 5, 1903 (c. 487, 32 Stat. [U. S. Comp. Stats. Supp. 1907, p. 1031]), under which this action was instituted, provide as follows: "A person shall be deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition, or after the filing of the petition and before the adjudication procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class. Where the preference consists in a transfer, such period of four months shall not expire until four months after the date of the recording or registering of the transfer, if by law such recording or registering is required. If a bankrupt shall have given a preference and the person receiving it, or to be benefited thereby, or his agent acting therein, shall have had reasonable cause to believe that it was intended thereby to give a preference, it shall be voidable by the trustee, and he may recover the property or its value from such person." The concluding clause of paragraph "a," which provides that: "Where the preference consists in a transfer, such period of four months shall not expire until four months after the date of the recording or registering of the transfer, if by law such recording or registering is required" 454 was added as an amendment by an act of Congress of February 5, 1903.

It is contended by counsel for the defendant that in this state a mortgage is not required to be recorded or registered to be valid as between the parties thereto; hence that the mortgage described in the first cause of action was valid as against this plaintiff, and in support of their contention they rely upon the cases of In re Hunt (D. C.), 139 Fed. 283, decided by the district judge of the northern district of New

York, and Meyer Bros. Drug Co. v. Pipkin Drug Co., 136 Fed. 396, 69 C. C. A. 240, decided by the United States court of appeals of the fifth circuit. These probably were the cases upon which the learned circuit court relied in sustaining the defendant's demurrer to the complaint in this action; but since the decision of the court upon the demurrer in the case at bar, this amendment has been very fully considered by the court of appeals of the sixth circuit, and that court, in a very able and exhaustive opinion in a case involving a chattel mortgage for thirty-seven thousand dollars, arrived at the conclusion that, where a mortgage was required by law to be recorded in order to make it valid as against any class of persons, it came within the provisions of the amendment, though it might be valid as between the parties thereto. That learned court, in speaking of the decision of Meyer Bros. Drug Co. v. Pipkin Drug Co., 136 Fed. 396, 69 C. C. A. 240, seems to treat it as a decision made upon the act prior to the amendment of February 5, 1903. The court then proceeded to discuss the case of In re Hunt, 139 Fed. 283, in which that court relates the history of the amendment at the time of its adoption, and says: "Independently of this legislative history, Judge Archibald, in English v. Ross, 140 Fed. 630, and the circuit court of appeals for the eighth circuit in First Nat. Bank v. Connett, 142 Fed. 33, 73 C. C. A. 219, 5 L. R. A., N. S., 148, reached an opposite conclusion, and held that a recording statute, which required a conveyance or transfer to be recorded to be effectual against a certain class or classes of persons, was a law which required the recording of the transfer in question, within the meaning of section 60 as amended. With this conclusion we agree.' "" The court then proceeds to give its reasons at length with its decision, and says: "In view of all of the foregoing considerations, 455 we reach the conclusion that the word 'required,' as used in the amendment, refers to the character of the instrument giving preference or making the transfer, without reference to the fact that as to certain persons or classes of persons it may be good or bad according to circumstances. If to be valid against certain classes of persons, the law of the state requires the constructive notice of registration and its transfer, which is 'required' to be recorded. This takes account of the purpose and policy of recording acts, remedies the evil which flourished under the law before the amendment, gives effect to the plain purpose of Congress, and gives some effect and force to a provision which would otherwise be meaningless, and brings sections 3 and 60a and 60b into harmony of