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The true question is, Did the debtor suf- tion. To render the security void the debtor fer a preference through the legal proceed- must have contemplated an act of bankings of a judgment, levy, and impending ruptcy, or an application by himself to be sale, he taking no steps to avoid the consuni- decreed a bankrupt. mation of such preference?

Parmenter Mfg. Co. v. Stoever, 38 C. C. A. 200, 97 Fed. 330.

Mr. William F. Vilas argued the cause, and, with Mr. R. M. Bashford, filed a brief for appellee:

The judgment and levy were not a preference, nor suffered or permitted by Nelson, the appellee.

Wilson v. City Bank, 17 Wall. 473, 21 L. ed. 723; Clark v. Iselin, 21 Wall. 360, 22 L. ed. 568; Tenth Nat. Bank v. Warren, 96 U. S. 539, 24 L. ed. 640; McCaul v. Thayer, 70 Wis. 138, 35 N. W. 353; Second Ward Sav. Bank v. Schranck, 97 Wis. 250, 39 L. R. A.

569, 73 N. W. 31.

to the debtor.

The entry of judgment was not imputable
Clark v. Iselin, 21 Wall. 373, 22 L. ed.

572.

The mere nonresistance of a debtor to judicial proceedings against him, when the debt is due and there is no valid defense to it, is not the suffering and giving a preference under the bankrupt act.

Buckingham v. McLean, 13 How. 167, 14
L. ed. 97.

The property levied on was then in the
custody of the sheriff. To recover it or the
proceeds of its sale, a suit by the trustee
would be necessary.

Bardes v. First Nat. Bank, 178 U. S. 524, 44 L. ed. 1175, 20 Sup: Ct. Rep. 1000.

*Mr. Justice Gray delivered the opinion of [193] the court:

On February 5, 1885, Nelson, in consideration of so much money then lent to him[194] by Sarah Johnstone, executed and delivered to her his promissory note for the sum of $8,960, payable in five years, with interest until paid. Attached to that note was an irrevocable power of attorney, executed by Nelson, in the usual form, authorizing any attorney of a court of record in his name to confess judgment thereon after its maturity. The interest on the note was paid until November 1, 1898. At that date Nelson, as he well knew, was, and long had been, and ever since continued to be, insolvent. On November 21, 1898, Sarah Johnstone Tenth Nat. Bank v. Warren, 96 U. S. 539, caused judgment to be duly entered in a It is not an act of bankruptcy by an in-court of Wisconsin upon the note and the solvent to refrain from voluntary bank- warrant of attorney for the face of the note and costs. Upon that judgment, execution ruptcy. Legislation of this character ought not to be extended by implication, because, was issued to the sheriff, who on the same like acts imposing penalties in new cases, it day levied on Nelson's goods, and on Decemdeprives the citizen of rights which he other- ber 15, 1898, sold the goods by auction, and applied the proceeds thereof in part pay. wise possessed under the laws; and though ment of the judgment. This proceeding left the remedial purposes of the act should be Nelson without means to meet any other of rather aided than straitened by interpretation, this can be rightfully done only in the cases prescribed for its application. Collier, Bankruptcy, 3d ed. 23; Re Empire Metallic Bedstead Co. 39 C. C. A. 372,

24 L. ed. 640.

98 Fed. 981.

The policy of equal distribution was designed, not for cases of insolvency, but for cases of bankruptcy; not to be the law for governing the conduct of all insolvents, but only to control the administration of estates in the court of bankruptcy; and the estates of all insolvents, not by their own petition or upon proper adjudication brought within the jurisdiction of that court, remain subject to the operation of the laws and the authority of courts, not relating to bankrupt

cy.

Wilson v. City Bank, 17 Wall. 480, 21 L.

ed. 726.

There is not a line or word in the bankrupt act that vacates or discharges, or authorizes to be vacated or discharged, any judgment in any other court, lawfully entered, before bankruptcy, in a hostile proceeding against the bankrupt without his procurement or sufferance.

his obligations. The judgment was entered and the levy made without the procurement of Nelson and without his knowledge or consent. The judgment and levy were unassailable in law, and could not have been vacated or discharged by any legal proceedings, except by his voluntary petition in bankruptcy. On December 10, 1898, a petition in bankruptcy was filed against Nel son; and the questions certified present, in various forms, the question whether Nelson committed an act of bankruptcy within the meaning of § 3, cl. 3, of the bankrupt act of

1898.

In considering these questions, strict regard must be had to the provisions of that act, which, as this court has already had oc casion to observe, differ in important respects from those of the earlier bankrupt acts. Bardes v. First Nat. Bank, 178 U. S. 524, 44 L. ed. 1175, 20 Sup. Ct. Rep. 1000; Bryan v. Bernheimer, 181 U. S. 188, 45 L. ed. 814, 21 Sup. Ct. Rep. 557; Wall v. Cox, 181 U. S. 244, 45 L. ed. 845, 21 Sup. Ct. Rep. 642; Pirie v. Chicago Title & T. Co. 182 U. S. 438, 45 L. ed. 1171, 21 Sup. Ct. Rep. 906.

In § 3 of the bankrupt act of July 1, 1898, Nothing in the facts stated in the certifi chap. 541, acts of bankruptcy are defined as cate warrants the assumption of appellants' follows: "Acts of bankruptcy by a person counsel that Nelson could have vacated or shall consist of his having (1) conveyed, discharged the judgment of Mrs. Johnstone, transferred, concealed, or removed, or peror even have caused the lien of her execution mitted to be concealed or removed, any part to be dissolved, by filing his voluntary peti- of his property with intent to hinder, delay,

149

or defraud his creditors, or any of them; [195]or (2) transferred, while insolvent, *any portion of his property to one or more of his ereditors, with intent to prefer such creditors over his other creditors; or (3) suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceed. ings and not having, at least five days before a sale or final disposition of any property affected by such preference, vacated or discharged such preference; or (4) made a general assignment for the benefit of his creditors; or (5) admitted in writing his inability to pay his debts and his willingness to be adjudged a bankrupt on that ground." | [30 Stat. at L. 544.]

"or by such attachment," having reasonable cause to believe that such person is insolvent and that the same is made in fraud of this act, the same should be void and the assignee might recover the property. Act of March 2, 1867, chap. 176, § 35, 14 Stat. at L. 534; Rev. Stat. § 5128.

The corresponding provisions of the act of 1898 omit the requisite of the act of 1867, "with a view to give a preference."

Section 60 of the act of 1898, relating to "preferred creditors," begins by providing that "a person shall be deemed to have given a preference, if, being insolvent, he has 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 judg ment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such credit

In the first and second of these an intent on the part of the bankrupt, either to hinder, delay, or defraud his creditors, or to prefer over other creditors, is necessary to constitute the act of bankruptcy. But in the third, fourth, and fifth no such intentors of the same class." is required.

The third, which is that in issue in the case at bar, is in these words: "(3) suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceedings, and not having, at least five days before a sale or final disposition of any property affected by such preference, vacated or discharged such preference."

Section 67, relating to "liens," provides, in subd. c, as follows: "A lien created by, or obtained in, or pursuant to, any suit or proceeding at law or in equity, including an attachment upon mesne process, or a judgment by confession, which was begun against a person within four months before the filing of the petition in bankruptcy by or against such person, shall be dissolved by the adjudication of such person to be a bankrupt, if (1) it appears that said lien was obtained and permitted while the defendant was insolvent, and that its existence and enforcement will work a preference, or (2) the party or parties to be benefited thereby had reasonable cause to believe the defendant was insolvent and in contempla-[197] ,"tion of bankruptcy, or (3) that such lien was sought and permitted in fraud of the provisions of this act."

By the corresponding provision of the bankrupt act of 1867, any person who, being bankrupt or insolvent, or in contemplation of bankruptcy or insolvency, "procures or suffers his property to be taken on legal process, with intent to give a preference to one or more of his creditors," "or with the intent, by such disposition of his property, to defeat or delay the operation of this act," was deemed to have committed an act of bankruptcy. Act of March 2, 1867, chap. 176, § 39, 14 Stat. at L. 536; Rev. Stat. § 5021.

The act of 1898 differs from that of 1867 in wholly omitting the clauses, "with intent to give a preference to one or more of his creditors" or "to defeat or delay the operation of this act;" and in substituting for the words "procures or suffers his property to be taken on legal process," the words "suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceedings," and not having, five days before a sale of the property affected, "vacated or discharged such preference." [196] *There is a similar difference in the two statutes in regard to the preferences declared to be avoided.

The same section provides, in subd. f, "that 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." This provision evidently includes voluntary, as well as involuntary, bankrupts; for the 1st clause of the 1st section of the act, defining the meaning of words and phrases used in the act, declares that "a person against whom a petition has been filed' shall include a person who has filed a voluntary petition."

Taking together all the provisions of the act of 1898 on this subject, and contrasting them with the provisions of the act of 1867, there can be no doubt of their meaning.

The act of 1867 enacted that if any person, being insolvent, or in contemplation of insolvency, within four months before the The 3d clause of § 3. omitting the word filing of the petition by or against him, "procure," and the phrase "intent to give a "with a view to give a preference to any preference." of the former statute, makes it creditor or person having a claim against an act of bankruptcy if the debtor has "sufhim, or who is under any liability for him, fered or permitted, while insolvent, any procures or suffers any part of his property creditor to obtain a preference through legal to be attached, sequestered, or seized on proceedings," and has not "vacated or disexecution," or makes any payment, pledge, charged such preference" five days before a or conveyance of any part of his property, sale of the property. By § 60 he is "deemed the person receiving such payment, pledge, to have given a preference" if, being insol or conveyance, or to be benefited thereby, vent, he has "suffered a judgment to be en

tered against himself in favor of any person,' creditor an irrevocable warrant of attorney and the effect of the enforcement of which would enable him, at any time dursuch judgment will be to enable ing the insolvency *of the debtor, and within [199] any one of his creditors to obtain a greater four months before a petition in bankruptcy, percentage of his debt" than other creditors. to obtain a judgment and levy the execution By § 67, subd. c, a lien obtained in any suit, on all the property of the bankrupt, to the "including an attachment upon mesne pro- exclusion of his other creditors. cess, or a judgment by confession," begun The answer to the second and third queswithin four months before the filing of the tions certified must be that the judgment so petition in bankruptcy, is dissolved by the entered and the levy of the execution thereadjudication in bankruptcy, not only if on were a preference "suffered or permitted" "such lien was sought and permitted in by Nelson, within the meaning of clause 3 fraud of the provisions of this act," but also of § 3 of the bankrupt act; and that the if "its existence and enforcement will work failure of Nelson to vacate and discharge, at a preference." And by subd. f of the same least five days before the sale on execution, section "all levies, judgments, attachments, the preference so obtained, was an act of or other liens obtained through legal pro- bankruptcy; and it becomes unnecessary to ceedings against a person who is insolvent," answer the first question. [198] within the four months, shall be deemed null and void in case he is adjudged a bankrupt. The act of 1898 makes the result obtained by the creditor, and not the specific intent of the debtor, the essential fact.

In the case at bar, the warrant of attor. ney to confess judgment was indeed given by the debtor nearly thirteen years before. But being irrevocable and continuing in force, the debtor thereby, without any further act of his, "suffered or permitted" a judgment to be entered against him, within four months before the filing of the petition in bankruptcy, the effect of the enforcement of which judgment would be to enable the creditor to whom it was given to obtain a greater percentage of his debt than other creditors; and the lien obtained by which, in a proceeding begun within the four months, would be dissolved by the adjudication in bankruptcy, because "its existence and enforcement will work a preference." And the debtor did not, within five days before the sale of the property on execution, vacate or discharge such preference, or file a petition in bankruptcy. By failing to do so, he confessed that he was hopelessly insolvent, and consented to the preference that he failed to vacate.

The cases on which the appellee relies, of Wilson v. City Bank, 17 Wall. 473, 21 L. ed. 723; Clark v. Iselin, 21 Wall. 360, 22 L. ed. 568; and Tenth Nat. Bank v. Warren, 96 U. S. 539, 24 L. ed. 640, have no application, because they were decided under the act of 1867, which expressly required the debtor to have acted with intent to give a preference.

The case of Buckingham v. McLean, 13 How. 150, 14 L. ed. 90, arose under the still earlier bankrupt act of August 19, 1841, chap. 9, § 2 (5 Stat. at L. 442). And the point there decided was that a power of attorney to confess a judgment was an act of the bankrupt creating a "security," which that bankrupt act in express terms declared void only if made in contemplation of bankruptcy and for the purpose of giving a preference or priority over general creditors.

Second and third questions answered in the affirmative.

Mr. Justice Shiras dissenting:

On February 5, 1885, Cassius B. Nelson made and delivered to Sarah Johnstone his

promissory note for the sum of $8,960, paya-
ble in five years, with interest at the rate of
4 cent per annum until paid. To this note
was attached an irrevocable power of attor-
hand and seal in the usual form, authoriz.
ney, duly executed by said Nelson under his
ing any attorney of any court of record in
his name to confess judgment thereon after
for so much money at the time loaned to Nel-
This note was given
maturity of the note.
son. The interest on the note was paid from
time to time up to the 1st day of November,

1898.

On November 21, 1898, Sarah Johnstone caused judgment to be duly entered in the circuit court of the county of Dane, state of Wisconsin, against said Nelson upon the note and warrant of attorney aforesaid for the sum of $8,975. Upon that judgment, execution was immediately issued out of the court to the sheriff of that county, who levied upon the stock and goods of Nelson, and on December 15, 1898, sold the same at thereof, to wit, the sum of $4,400, upon and public auction, and applied the proceeds in part payment of the judgment so rend

ered.

*It is admitted that such a judgment note[200]
was, at the time it was made and delivered
under the law of the state of Wisconsin, a
legal and usual form of security for money
loaned. McCaul v. Thayer, 70 Wis. 138, 35
N. W. 353; Second Ward Sav. Bank v.

Schranck, 97 Wis. 250, 39 L. R. A. 569, 73
N. W. 31, 37.

It is also admitted that the judgment was executed and the levy made without the procurement of Nelson and without his knowledge or consent, and that such judgment was not subject to attack by Nelson, and could not have been vacated or discharged by any legal proceedings which might have been instituted by him; nor could the levy issued under the execution have been set aside The careful change in the language of all or vacated by Nelson, unless his filing his the provisions of the bankrupt act of 1898 voluntary petition in bankruptcy prior to from those of the former bankrupt acts upon the sale, and obtaining an adjudication of the subject must have been intended by bankruptcy thereunder, would have had that Congress to prevent a debtor from giving a effect, or by payment of the judgment..

On December 10, 1898, creditors of said given in contemplation of bankruptcy inNelson filed a petition in involuntary bank-volves the question, What is meant by those ruptcy against him in the district court of words? It is understood that, while the the United States for the western district bankrupt law was in operation, different inof Wisconsin. The act of bankruptcy there- terpretations were placed upon them in difin alleged was in substance that while in- ferent circuits. By some judges they were solvent he suffered and permitted the said held to mean contemplation of insolvencySarah Johnstone, one of his creditors, to ob- of a simple inability to pay as debts should tain preference upon his property, through become payable-whereby his business would legal proceedings, by the entry of said judg- be broken up; this was considered to be a ment and the levy thereunder upon his stock state of bankruptcy, the contemplation of of goods, and failed to vacate or discharge which was sufficient. By other judges it the preference obtained through such legal was held that the debtor must contemplate proceedings at least five days before the sale an act of bankruptcy, or a voluntary appliof the property under such judgment and cation for the bankrupt law. . . . It is execution. Upon issue joined, the district somewhat remarkable that this question court ruled that Nelson had not, by reason should be presented *for the first time for the[202] of the premises, committed an act of bank- decision of this court after the law has been ruptcy, and dismissed the petition. An ap- so long repealed, and nearly all proceedings peal was taken to the United States circuit under it terminated. Perhaps the explanacourt of appeals for the seventh circuit, and tion may be found in the fact that when se. that court has certified certain questions for curities have been given within two months the consideration of this court. before the presentation of a petition by or against the debtor, the evidence would usually bring the case within either interpretation of the law. However this may be, it is now presented for decision; and we are of opinion that, to render the security void, the debtor must have contemplated an act of bankruptcy, or an application by himself to be decreed a bankrupt.

The essential question in the case is whether, under the facts disclosed, Nelson was guilty of an act of bankruptcy in failing to file a petition in voluntary bankruptcy. This question must be answered in the negative if we respect previous decisions of this court in similar cases.

The subject was considered in Buckingham v. McLean, 13 How. 151, 14 L. ed. 91. The case arose under the bankrupt act of [201]1841,*and it appeared that one John Mahard had (on April 7, 1842) executed a power of attorney to confess judgment in favor of Buchingham for $14,000; judgment was entered the next day; execution was issued April 20, and levy was made and sale of property, real and personal. On May 27, 1842, Mahard petitioned to be declared a bankrupt.

There were other questions in the case, but Mr. Justice Curtis, in his discussion of the question now before us, and speaking for the court, made the following observations: "In many of the states a bond and warrant of attorney to enter up judgment is a usual mode of taking security for a debt, and judgments thus entered are treated as securities, and an equitable jurisdiction exercised over them by courts of law. In some states they operate only as a lien on the lands of the debtor, in others on his personal estate also (Brown v. Clarke, 4 How. 4, 11 L. ed. 850), and wherever, by the local law, a judgment or an execution operates to make a lien on property, we are of opinion it is to be deemed a security; and when rendered upon confession, under a power given by the debtor for that purpose, it is a security made or given by him within the meaning of the bankrupt act, and is void if accompanied by the facts made necessary by that act to render securities void. These facts are that the security was given 'in contemplation of bankruptcy, and for the purpose of giving any creditor, indorser, surety or other person a preference or priority over the general creditors of such bankrupt.'

"The inquiry whether this security was

"Under the common law, conveyances by a debtor to bona fide creditors are, valid, though the debtor has become insolvent, and failed, and makes the conveyance for the sole purpose of giving a preference over his other creditors. This common-law right it was the object of the 2d section of the act to restrain; but, at the same time, in so guarded a way as not to interfere with transactions consistent with the reasonable accomplishment of the objects of the act. To give to these words, contemplation of bankruptcy, a broad scope and somewhat loose meaning, would not be in furtherance of the general purpose with which they were introduced.

"The word 'bankruptcy' occurs many times in this act. It is entitled 'An Act to Establish a Uniform System of Bankruptcy.' And the word is manifestly used in other parts of the law to describe a particular legal status, to be ascertained and declared by a judicial decree. It cannot be easily admitted that this very precise and definite term is used in this clause to signify something quite different. It is certainly true in point of fact that even a merchant may contemplate insolvency and the breaking up of his business, and yet not contemplate bankruptcy. He may confidently believe that his personal character, and the state of his affairs, and the disposition of his creditors, are such that when they shall have examined into his condition they will extend the times of payment of their debts and enable him to resume his business. A person not a merchant, banker, etc., and consequently not liable to be proceeded against and made a bank. rupt, though insolvent, may have come to a determination that he will not petition. The contemplation of one of these states *not be-[203

It was a security by him made or given only by reason of that instrument. What followed were acts of the creditor and of officers of the law, with which the debtor is no more connected than with the delivery by the creditor of a deed to the office of the register, to be recorded, or the act of the register in recording it. It would seem that if the intent of the debtor is to give a legal quality to a transaction, it must be an intent accompanying an act done by himself, and not an intent or purpose arising in his mind afterwards, while third persons are acting; and that consequently we must inquire whether the debtor contemplated. bankruptcy when he executed the power.

ing in fact the contemplation of the other, to say that both were included in a term which describes only one of them would be a departure from sound principles of interpretation. Moreover, the provisos in this section tend to show what was the real meaning of this first enacting clause. The object of these provisos was to protect bona fide dealings with the bankrupt more than two months before the filing of the petition by or against him, provided the other party was ignorant of such an intent on the part of the bankrupt as made the security invalid under the first enacting clause. And the language is: 'Provided, that the other party to any such dealings or transactions had no notice of a prior act of bankruptcy "It is true this construction would put it or of the intention of the bankrupt to take in the power of creditors, by taking a bond the benefit of this act.' These facts, of one and warrant of attorney while the debtor of which a bona fide creditor must have no- was solvent and did not contemplate banktice, to render his security void if taken more ruptcy, to enter up a judgment and issue than two months before the filing of the pe-execution, and by a levy acquire a valid lien, tition, can hardly be supposed to be differ- down to the very moment when the title of ent from the facts which must exist to rend- the assignee began. But this was undoubter the security void under the first clause; edly so under the statute of James, which, or, in other words, if it be enough for the like ours, contained no provision to meet debtor to contemplate a state of insolvency this mischief; and it became so great that it could hardly be required that the credit- by the 108th section of the revising act of 6 or should have notice of an act of bankrupt- Geo. IV. it was enacted that 'no creditor, cy or an intention to take the benefit of the though for a valuable consideration, who act. It would seem that notice to the credit- shall sue out execution on any judgment obor of what is sufficient to avoid the security tained by default, confession, or nil dicit, must deprive him of its benefits, and, con- shall avail himself of such execution, to the sequently, if he must have notice of some- prejudice of other fair creditors, but shall thing more than insolvency, something more be paid ratably *with such creditors.' If the[205] than insolvency is required to render the bankrupt act of 1841 had continued to exsecurity invalid, and that we may safely ist, a similar addition to its provisions take this description of the facts which a would doubtless have become necessary." creditor must have notice of to avoid the] security as descriptive also of what the bankrupt must contemplate to render it void. "In construing a similar clause in the English bankrupt law, there have been conflicting decisions. It has been held that contemplation of a state of insolvency was sufficient. Pulling v. Tucker, 4 Barn. & Ald. 382; Poland v. Glyn, 2 Dowl. & R. 310. But both the earlier and later decisions were otherwise, and, in our judgment, they contain the sounder rule. Fidgeon v. Sharpe, 5 Taunt. 545; Hartshorn v. Slodden, 2 Bos. & P. 582; Gibbins v. Phillipps, 7 Barn. & C. 529; Belcher v. Prittie, 10 Bing. 408; [204]*Morgan v. Brundrett, 5 Barn. & Ad. 297. And see the opinion of Patterson, J., in the last case.

This suggestion of Justice Curtis was justified by provisions contained in the bankruptcy acts of 1867 and 1898, which enacted that liens obtained by attachments upon mesne process, or judgment by con. fession, within four months before the filing of the petition in bankruptcy by or against the creditor, shall be dissolved by the adjudication of the debtor to be a bankrupt, if it appear that such a lien was procured or suffered, obtained and permitted, while the debtor was insolvent and contemplating bankruptcy, the party or parties to be benefited thereby having reasonable cause to believe that the debtor was insolvent and in contemplation of insolvency. But, as shall presently see, such provisions do not affect the question before us now.

we

"Considering, then, that it is necessary to In Wilson v. City Bank, 17 Wall. 473, 21 show that the debtor contemplated an act L. ed. 723, decided under the provisions of of bankruptcy, or a decree adjudging him a the act of 1867, it was held that something bankrupt on his own petition, at what time more than passive nonresistance in an inin this case must he have had this in con- solvent debtor is necessary to invalidate a templation? He gave the power of attor- judgment and levy on his property when the ney on the 7th of April; the judgment was debt is due and he has no defense; and that confessed and entered upon the next day: in such case there is no legal obligation on the execution was taken out and levied and the debtor to file a petition in bankruptcy the lien created thereby on the 22d of May; to prevent the judgment and levy, and a and five days afterwards, being less than failure to do so is not sufficient evidence of two months after the execution of the power, an intent to give a preference to the judg the debtor presented the petition under ment creditor, or to defeat the operation of which he was decreed a bankrupt. The the bankrupt law. In his opinion, discuss. only act done by the debtor was the execu-ing the facts of the case, Mr. Justice Miller tion and delivery of the power of attorney. said:

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