Cunningham v. Brown - 265 U.S. 1 (1924)
U.S. Supreme Court
Cunningham v. Brown, 265 U.S. 1 (1924)
Cunningham v. Brown
Argued March 12, 1924
Decided April 28, 1924
265 U.S. 1
1. Where a person obtained money by fraudulent representations from many others upon his time notes for the amounts borrowed and fifty percent, but, to stimulate public confidence, gave it out that he would return the amount borrowed on any note at any time before its maturity and pursued that practice, held, that lenders who took advantage of this offer and secured repayment shortly before his bankruptcy, when they had reason to believe him insolvent, were not thereby rescinding their contracts for the fraud and reclaiming their own funds, but were creditors equally with the others who filed their claims for reimbursement in the bankruptcy proceedings, and that the repayments thus made were illegal preferences recoverable by the bankrupt's trustees. P. 265 U. S. 10.
2. Facts held to sustain a finding that parties obtaining repayments had reason to believe the payor insolvent. Id.
3. Where the funds of a bankrupt consisted entirely of money borrowed from many persons by fraud, a lender who rescinded and secured repayment out of the same bank account in which his and other like loans were deposited by the bankrupt could not justify the repayment, against the charge of illegal preference upon the theory of a resulting trust, or lien, if the repayment was made after the account had been exhausted by payments to other lenders and after it had been replenished by the bankrupt with other portions of the borrowed funds. P. 265 U. S. 11.
4. In such a situation, the ruling in Clayton's Case, 1 Merivale 572, that defrauded claimant were entitled to be paid inversely to the order in which their moneys went into a common fund, has no application, and likewise the ruling in Knatchbull v. Hallett, L.R. 13 Ch.D. 696, that, where a fund is composed partly of a defrauded claimant's money and partly of that of the wrongdoer, it will be presumed that, in the fluctuations of the fund, it was the wrongdoer's purpose to draw out first the money to which he was honestly entitled, and that the claimant may assert an equitable lien on the residue. P. 265 U. S. 12.
5. A minor is not exempt from defeat of an unlawful preference under § 60b of the Bankruptcy Act. P. 265 U. S. 13.
284 F. 936 reversed.
Certiorari to review decrees of the circuit court of appeals affirming decrees of the district court which dismissed the bills in six suits brought by the trustees of a bankrupt, under § 60b of the Bankruptcy Act to recover payments made by the bankrupt, upon the ground that they were unlawful preferences.