Response or Comment
In the recent case of Golden Hill Distilling Co. v. Logue, 243 Fed. 342, the Circuit Court of Appeals for the Sixth Circuit holds that a "creditor who recovers a judgment, by consent or in invitum, and by execution sale collects his money within four months preceding bankruptcy, and with reasonable cause to believe [that a preference would thereby be effected] receives a voidable preference, which he must repay to the trustee." This question is one that has vexed the bankruptcy courts ever since the Supreme Court of the United States in Clarke v. Larremore, 188 U. S. 486, declined to answer it. It usually arises under circumstances as follows: C sues his insolvent debtor, B, obtains a judgment against him, issues and levies an execution, and sells under the levy. If the bankruptcy of B intervenes at this point, before the sheriff has turned over to C the proceeds of the execution sale, it is clear under the decision in Clarke v. Larremore that if the judgment is less than four months old it is avoided and the property affected by its lien is discharged and released from the same by the provisions of § 67f of the BANKRUPTCY ACT of 1898 which reads in part as follows: "* * * all levies, judgments, attachments, or other liens, obtained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of a petition in bankruptcy against him, shall be deemed null and void in case he is adjudged a bankrupt, and the property affected by the levy, judgment, attachment, or other lien shall be deemed wholly discharged and released from the same * * *" And it is equally clear that under these circumstances it is immaterial whether the creditor has, or has not, any information or notice as to his debtor's insolvency or intent to prefer.
Holbrook, Evans. "Execution Sales as Preferential Transfers in Bankruptcy." Mich. L. Rev. 16 (1917): 115-9.