« AnteriorContinuar »
findings of the court, and added the fol- | petitioner in the service after a lapse of lowing: “The evidence in the case is posi- three years, and thereby condoned the oftive and clear, and the findings of the court fense. But it has never directly or indisustained thereby. Lieut. Comdr. Bishop rectly intimated that petitioner was entiproduces no witnesses in his behalf, and the tled to pay during the suspension. statement made by him to the court is lame The judgment of the Court of Claims is throughout. There is no recommendation by affirmed. the court for clemency." December 3, 1867, the Secretary of the
(197 U. S. 356) Navy certified that the case was submitted
GUILFORD B. KEPPEL, Trustee, etc., to the President for his action in accord
V. ance with article 19 of the above act, to
TIFFIN SAVINGS BANK. which are added the words: “Approved : Andrew Johnson."
Bankruptcy-retention of preference until On February 8, 1868, the Secretary of the judgment of avoidance does not prevent Navy addressed to the petitioner a letter proof of claim. notifying him of the sentence of court-martial, and added as follows: "The sentence
A creditor of a bankrupt, who has in good of the court in your case having been ap
faith received a preference voidable under the
bankrupt act of July 1, 1898, § 67e (30 Stat. proved by the President, you are hereby dis
at L. 565, chap. 541, U. S. Comp. Stat. 1901, missed from the Navy service," etc. It is p. 3449), solely because given within four difficult to see how the personal approval months prior to the filing of the petition in of the President could appear more clearly
bankruptcy, and who has in good faith rethan in this case. In United States v.
tained the preference until deprived thereof
hy the judgment of a court in a suit by the Fletcher, 148 U. S. 84, 37 L. ed. 378, 13
trustee, still may prove the debt so voidably Sup. Ct. Rep. 552, there appeared only the preferred, notwithstanding the provision of certificate of the Secretary of War that the § 57g that “the claims of creditors who have proceedings of the court-martial were for
received preferences shall not be allowed un
less such creditors shall surrender their prefwarded to the Secretary of War for the ac
erences." tion of the President, and that "the proceedings, findings, and sentence are ap
[No. 116.] proved;” but it was held that the order was valid, though it did not appear that the President personally examined the pro- Argued and submitted January 6, 1905. Deceedings and approved the execution of the
cided April 3, 1905. sentence. Criticism was made in that opinion of Runkle v; United States, 122 (s.O SA CERTIFICATE from the United 543, 30 L. ed. 1167, 7 Sup. Ct. Rep. 1141,
States Circuit Court of Appeals for the upon the ground that the circumstances of Sixth Circuit presenting the question wheththat case were so exceptional as to render er the creditor of a bankrupt, who has in it an unsafe precedent in any other. It was good faith received a merely voidable prefheld in that case that there was no suffi- erence, may prove his claim, where he has cient evidence that the action of the court- retained the preference until deprived theremartial was approved, and it followed that of by the judgment of a court in a suit by the officer was never legally dismissed the trustee. Answered in the affirmative. the service. No such criticism can be made here, as it not only appears from the let- Statement by Mr. Justice White: ter of February 8 that the sentence of the
Charles A. Goetz became a voluntary court had been approved by the President, bankrupt on October 12, 1900. George B. but his approval distinctly appears at the Keppel, the trustee, sued the Tiffin Savings foot of the brief.
Bank in an Ohio court to cancel two real. We find nothing in this case of which the estate mortgages executed by Goetz, one to petitioner has any just reason to complain. secure a note for $4,000 and the other a note The proceedings of the court-martial were for $2,000. The mortgage to secure the conducted with a substantial, if not a lit- $4,000 note was made more than four eral, conformity to the law, and we must months before the adjudication in bankpresume, at least, that there was sufficient ruptcy. The mortgage securing the $2,000 evidence to support the sentence. While note was executed a few days before the drunkenness is not ordinarily considered as bankruptcy, the mortgagor being at the criminal, the intoxication of a naval officer time insolvent and intending to prefer the while on duty is a gross breach of discipline, bank. The bank defended the suit, averand liable to be attended by very serious ring its good faith and asserting the validconsequences. Congress evidently acted with ity of both the securities.
In a cross peforbearance and generosity in reinstating' tition the enforcement of both mortgages was prayed. The court held the mortgage, it is to be observed that the facts stated in securing the $4,000 note to be valid, and the certificate and implied by the question the mortgage securing the $2,000 note to be show that the bank acted in good faith when void. The trustee appealed to a circuit it accepted the mortgage and when it subcourt, where a trial de novo was had. At
At sequently insisted that the trustee should such trial the attorney for the bank stated prove the existence of the facts which, it to the court that the bank waived any claim was charged, vitiated the security. It reto a preference as to the $2,000 note, but sults that the voidable nature of the transthat he could not assent to a judgment to action alone arose from § 67e of the act of that effect. A judgment was entered sus- 1898, invalidating "conveyances, transfers, taining the security for the $4,000 note and or encumbrances of his property made by a avoiding that for the $2,000 note.
debtor at any time within four months prior The bank subsequently sought to prove to the filing of the petition against him, and that it was a creditor of the estate upon while insolvent, which are held null and the note for $2,000, and upon two other un void as against the creditors of such debtor secured notes, aggregating $835. The ref- by the laws of the state, territory, or diseree refused to allow the proof, upon the trict in which such property is situate” [30 ground that, as the bank had compelled the Stat. at L. 565, chap. 541, U. S. Comp. trustee to sue to cancel the security, and a Stat. 1901, p. 3449), and giving the assignee judgment nullifying it had been obtained, a right to reclaim and recover the property the bank had lost the right to prove any for the creditors of the bankrupt estate. claim against the estate. The district judge, On the one hand, it is insisted that a credupon review, reversed this ruling. The cir-itor who has not surrendered a preference cuit court of appeals to which the issue until compelled to do so by the decree of a was taken, after stating the case as above court cannot be allowed to prove any claim recited, certified questions for our determi- against the estate. On the other hand, it nation.
is urged that no such penalty is imposed by
the bankrupt act, and hence the creditor, Vessrs. John C. Royer, Henry Weller, on an extinguishment of a preference, by and Bunn & Royer for Keppel.
whatever means, may prove his claims. Messrs. George E. Seney, John L. These contentions must be determined by Lott, and Milton Sayler for the bank. the text, originally considered, of $ 579
of the bankrupt act, providing that “the Mr. Justice White, after making the claims of creditors who have received pretforegoing statement, delivered the opinion erences shall not be allowed unless such of the court:
creditors shall surrender their preferences.” The following are the questions asked by We say by the text in question, because there the court of appeals:
is nowhere any prohibition against the proof "First. Can a creditor of a bankrupt, who of a claim by a creditor who has had a prefhas received a merely voidable preference, erence, where the preference has disappeared and who has in good faith retained such as the result of a decree adjudging the preference until deprived thereof by the preferences to be void, unless that result judgment of a court upon a suit of the trus- arises from the provision in question. We tee, thereafter prove the debt so voidably say also from the text as originally considpreferred ?
ered, because, although there are some de“Second. Upon the issue as to the allow- cisions, under the act of 1898, of lower Fedance of the bank's claims, was it compe- eral courts, which are referred to in the tent, in explanation of the judgment of the margin,t denying the right of a creditor to Ohio circuit court in favor of the trustee prove his claim, after the surrender of a and against the bank in respect to its preference by the compulsion of a decree or $2,000 mortgage, to show the disclaimer judgment, such decisions rest not upon an made in open court by the attorney repre- analysis of the text of the act of 1898 alone senting the bank, of any claim of preference, considered, but upon what were deemed to and the grounds upon which the bank de- have been analogous provisions of the act clined to consent to a judgment in favor of of 1867 and decisions thereunder. We omit, the trustee?
therefore, further reference to these deci“Third. If the failure to 'voluntarily sur- sions, as we shall hereafter come to conrender the mortgage given to secure the sider the text of the present act by the light $2,000 note operates to prevent the allow-thrown upon it by the act of 1867 and the ance of that note, does the penalty extend judicial interpretation which was given to to and require the disallowance of both the that act. other claims?"
The text is, that preferred creditors shall Before we develop the legal principles es
* Re Greth, 112 Fed. 978; Re Keller, 109 Fed. sential to the solution of the first question, '126, 127; Re Owings, 109 Fed. 624.
not prove their claims unless they surren- expressly or even by clear implication found der their preferences. Let us first consider in the statute. This would disregard the the meaning of this provision, guided by the elementary rule that a penalty is not to be cardinal rule which requires that it should, readily implied, and, on the contrary, that if possible, be given a meaning in accord a person or corporation is not to be subjectwith the general purpose which the statute ed to a penalty unless the words of the was intended to accomplish.
statute plainly impose it. Tiffany v. NaWe think it clear that the fundamentaltional Bank, 18 Wall. 409, 410, 21 L. ed. purpose of the provision in question was to 862, 863. If it had been contemplated that secure an equality of distribution of the the word “surrender” should entail upon assets of a bankrupt estate. This must be 'every creditor the loss of power to prove his the case, since, if a creditor having a pref- claims if he submitted his right to retain erence retained the preference, and at the an asserted preference to the courts for desame time proved his debt and participated cision, such purpose could have found ready in the distribution of the estate, an ad-expression by qualifying the word “surrenvantage would be secured not contemplated der” so as to plainly convey such meaning. by the law. Equality of distribution be- Indeed, the construction which would read ing the purpose intended to be effected by in the qualification would not only create the provision, to interpret it as forbidding a penalty alone by judicial action, but would a creditor from proving his claim after a necessitate judicial legislation in order to surrender of his preference, because such define what character and degree of compulsurrender was not voluntary, would frus- sion was essential to prevent the surrender trate the object of the provision, since it in fact from being a surrender within the would give the bankrupt estate the benefit meaning of the section. of the surrender or cancelation of the pref- It is argued, however, that courts of bankerence, and yet deprive the creditor of any ruptcy are guided by equitable consideraright to participate, thus creating an in- tions, and should not permit a creditor who equality. But it is said, although this be has retained a fraudulent preference until true, as the statute is plain, its terms can compelled by a court to surrender it, to not be disregarded by allowing that to be prove his debt, and thus suffer no other loss done which it expressly forbids. This rests than the costs of litigation. The fallacy lies upon the assumption that the word "surren- in assuming that courts have power to inder” necessarily implies only voluntary ac- flict penalties, although the law has not imtion, and hence excludes the right to prove posed them. Moreover, if the statute be where the surrender is the result of a re- interpreted as it is insisted it should be, covery compelled by judgment or decree. there would be no distinction between hon
The word "surrender,” however, does not est and fraudulent creditors, and therefore exclude compelled action, but, to the con every creditor who in good faith had actrary, generally implies such action. That quired an advantage which the law did not this is the primary and commonly accepted permit him to retain would be subjected to meaning of the word is shown by the dic- the forfeiture simply because he had pretionaries. Thus, the Standard Dictionary sumed to submit his legal rights to a court defines its meaning as follows: “1. To yield for determination. And this accentuates the possession of to another upon compulsion or error in the construction, since the elemendemand, or under pressure of a superior tary principle is that courts are created to force; give up, especially to an enemy in pass upon the rights of parties, and that warfare; as, to surrender an army or a it is the privilege of the citizen to submit fort.” And in Webster's International Dic- his claims to the judicial tribunals,—espetionary the word is primarily defined in the cially in the absence of malice and when same way. The word, of course, also some acting with probable cause,—without subtimes denotes voluntary action. In the stat. jecting himself to penalties of an extraordiute, however, it is unqualified, and generic, nary character. The violation of this rule, and hence embraces both meanings. The which would arise from the construction, is construction which would exclude the pri- well illustrated by this case. Here, as we mary meaning, so as to cause the word have seen, it is found that the bank acted only to embrace voluntary action, would in good faith, without knowledge of the inread into the statute a qualification, and solvency of its debtor and of wrongful intent this in order to cause the provision to be on his part, and yet it is asserted that the in conflict with the purpose which it was right to prove its lawful claims against the intended to accomplish,-equality among bankrupt estate was forfeited simply becreditors. But the construction would do cause of the election to put the trustee to more. It would exclude the natural mean-proof, in a court, of the existence of the ing of the word used in the statute, in or- facts made essential by the law to an inder to create a penalty, although nowhere' validation of the preference.
We are of opinion that, originally consid- And Erskine, Ch. J., p. 74, after assumered, the surrender clause of the statute ing that the transaction complained of was intended simply to prevent a creditor might have been fraudulent and amounted from creating inequality in the distribution to act of bankruptcy, said-italics of the assets of the estate by retaining a mine-(p. 75.) : preference, and at the same time collecting “The next part of the prayer is that the dividends from the estate by the proof of claim should be disallowed. But though his claim against it, and consequently that the assignment of the property may be inwhenever the preference has been abandoned valid, that will not invalidate the debt of or yielded up, and thereby the danger of in the respondents. We could not, therefore, equality has been prevented, such creditor disallow the claim, or expunge the proof, if is entitled to stand on an equal footing the claim had been converted to a proof; with other creditors and prove his claims. all that we can do is to restrain the re
Is the contention well founded that this spondents from receiving any dividends unmeaning which we deduce from the text of til they give up the property." the surrender clause of the present act is Thus the English rule substantially conso in conflict with the rule generally applied formed to the construction we have given to in bankruptcy acts, and is, especially, so the bankruptcy act before us. contrary to the act of 1867 and the con- Neither our bankrupt act of 1800 (2 Stat. struction given to it, that such meaning at L. 19, chap. 19) nor that of 1841 (5 Stat. cannot be considered to have been contem- at L. 440, chap. 9) contained a surrender plated by Congress in adopting the present clause, or any provision generally denying act, and hence a contrary interpretation the right of a creditor of a bankrupt to should be applied ?
prove his debt in the event that he had reWithout attempting to review the Eng-ceived a preference. But, under those acts, lish bankruptcy acts, or the provisions con- bankruptcy courts must necessarily have tained therein concerning what constituted exercised the power of protecting the estate provable debts, and the decisions relating by preventing a creditor having an otherthereto, it is clear that under those acts, wise provable debt, who retained that which where a debt was otherwise provable and belonged to the estate, from at the same the creditor had acquired a lien to which time taking dividends from it. he was not entitled, the English courts in The purpose of Congress when a forfeiture bankruptcy did not imply a forfeiture by or penalty was intended, not to leave it to refusing to allow proof of the debt because arise from mere construction, but to exthere had not been a voluntary surrender of pressly impose such penalty or forfeiture, the preference. On the contrary, where is well illustrated by the bankrupt act of claims were filed against the estate by one 1800, wherein numerous penalties and forwho was asserted to have retained a pref- feitures were explicitly declared. Two inerence, a well-settled practice grew up, en- stances are illustrative. By § 16 it was forced from equitable considerations. The provided: “That if any person or persons practice in question was followed in the shall fraudulently or collusively claim any case of Ex parte Dobson, 4 Deacon & C. 69, debts, or claim or detain any real or perdecided in 1834, and was thus stated in the sonal estate of the bankrupt, every such opinion of Sir G. Rose (p. 78):
person shall forfeit double the value there“I apprehend the practice to be settled, of, to and for the use of the creditors.” where a creditor applies to prove a debt, And by § 28 it was provided that a creditor and claims a right to property to which the suing out a commission, who subsequently commissioners think he has no lien, that the accepted a preference, “shall forfeit and commissioners admit the proof, and leave lose, as well his or her whole debts, as the the question to be controlled merely by re- whole he or she shall have taken and retention of the dividend. This was settled ceived, and shall pay back, or deliver up the by the case of Ex parte Ackroyd [1 Rose, same, or the full value thereof, to the as391], where the commissioners had rejected signee or assignees who shall be appointed the proof of a creditor, because he had re-or chosen under such commission, in manceived a portion of his debt, which the as- ner aforesaid, in trust for and to be dividsignees contended he was bound to refund; ed among the other creditors of the said but when the question came before Sir John bankrupt, in proportion to their respective Leach, as vice chancellor, he decided that debts.” the proof of the debt was not to be rejected, The bankrupt act of 1867 (14 Stat. at L. because there was a question to be tried be- 528, chap. 176), contained the following surtween the bankrupt's assignees and the cred-render clause: itor, although it was proper that no divi- “Sec. 23.
Any person who after dend should be paid on that proof, until the the approval of this act shall have accepted question was determined.”
any preference, having reasonable cause to believe that the same was made or given by deemed that the surrender clause contained the debtor, contrary to any provision of provision for the penalty, otherwise § 39 this act, shall not prove the debt or claim would in that regard be wholly superfluous. on account of which the preference was If, on the other hand, it be considered that made or given, nor shall he receive any § 39 embraced other debts or claims against dividend therefrom until he shall first have the estate than those to which the surrender surrendered to the assignee all property, clause related, then the expression of the money, benefit, or advantage received by him penalty in § 39, under the rule of expressio under such preference.”
unius, could not by implication be read into And § 35 of the act conferred power upon the previous surrender clause. That is to the assignee to sue to set aside and recover say, if § 23 and § 39 of the act of 1867 be illegal preferences, transfers, etc., but there considered as not in pari materia, then it was not contained in the section any pro- follows that the former,—the surrender vision prohibiting the proof of claims after clause,-standing alone, did not impose the recovery by the assignee. In § 39 of the penalty or forfeiture provided for in the act, however, which was found under the latter. If they were in pari materia, then head of involuntary bankruptcy, there was the penalty, whilst applicable and controlcontained an enumeration of the various ling as to both, because of its expression in acts which would constitute acts of bank- the later section, cannot be said to have ruptcy, and following a grant of authority existed alone in and by virtue of an earlier to the assignees to sue for and recover prop- section, wherein no penalty was expressed. erty transferred, etc., by the bankrupt con- The decisions of the lower Federal courts trary to the act, the section concluded with interpreting the sections in question, as they the declaration that when the recipient had stood prior to the amendment of § 39 by the reasonable cause to believe that a fraud on act of 1874, hereafter to be referred to, the act was intended, and that the debtor were numerous, and we shall not attempt to was insolvent, “such creditor shall not be review them in detail. They will be found allowed to prove his debt in bankruptcy.” collected in a note contained in the eleventh
Passing the present consideration of the edition of Bump on Bankruptcy, pp. 550 et judicial construction given to the act of seq. Disregarding the discord of opinion 1867, and treating, as we believe should be shown by those decisions concerning what done, the restriction as to the proof of debts constituted an involuntary surrender,—that expressed in § 39 as applicable to vol- is, whether it was involuntary if made at untary as well as involuntary bankruptcy, any time after suit brought by the assignee, we think, as a matter of original interpre- or was only so after recovery by the force tation, the surrender clause of the act of of a judgment or decree,-and putting out 1867 not only fortifies, but absolutely sus- of view also the differences of opinion which tains, the construction which we have given were engendered by the fact that the forfeito the surrender clause of the act of 1898. ture imposed by § 39 was found in that porWhilst the surrender clause of the act of tion of the act of 1867 which related to in1867 changed the method of procedure pre voluntary bankruptcy, we think the deci. vailing under the English rule, and pre- sions under the act of 1867, prior to the sumptively also obtaining under the acts of amendment of 1874, may be classified un1800 and 1841, by which a creditor holding der four headings. a preference might prove his claim, but was First. The cases which held that the proallowed to obtain no advantage from so do-hibition of § 39 against the proof of debt ing until he had surrendered his preference, operated as a bar to such proof, even alit cannot, we think, in reason be considered though there was a voluntary surrender, , that this mere alteration in the practice to where the preference had the characteristics be followed was intended in and of itself to pointed out in § 39. These cases were, howimpose a penalty upon a creditor who did ever, contrary to the great weight of aunot voluntarily surrender his preference. thority under the act, and the construction And this we think is demonstrated when it which they enforced may be put out of is seen that, after making the change as to view. the procedure in the proof of debts by pre- Second. Those cases which, whilst treatferred creditors, there was subsequently em- ing the surrender clause as giving a creditbodied in § 39 an express prohibition, in the or an alternative which he might exercise nature of a penalty, forbidding the proof of without risk of penalty or forfeiture, yet debt by a creditor who came within the pur- held that by the operation of § 39 upon view of the section. Either that provision the surrender clause the creditor lost the solely related to proof of debts embraced option to prove his claim, when the surrenin the previous surrender clause or it did der was compelled by a judgment or decree not. If it did, then the expression of the at the suit of the assignee. The cases enpenalty in § 39 indicates that it was not 'forcing this interpretation constituted the