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three years, and thereby condoned the offense. But it has never directly or indirectly intimated that petitioner was entitled to pay during the suspension. The judgment of the Court of Claims is affirmed.
findings of the court, and added the fol- | petitioner in the service after a lapse of lowing: "The evidence in the case is positive and clear, and the findings of the court sustained thereby. Lieut. Comdr. Bishop produces no witnesses in his behalf, and the statement made by him to the court is lame throughout. There is no recommendation by the court for clemency."
December 3, 1867, the Secretary of the Navy certified that the case was submitted to the President for his action in accordance with article 19 of the above act, to which are added the words: "Approved: Andrew Johnson."
On February 8, 1868, the Secretary of the Navy addressed to the petitioner a letter notifying him of the sentence of court-martial, and added as follows: "The sentence of the court in your case having been approved by the President, you are hereby dismissed from the Navy service," etc. It is difficult to see how the personal approval of the President could appear more clearly than in this case. In United States v. Fletcher, 148 U. S. 84, 37 L. ed. 378, 13 Sup. Ct. Rep. 552, there appeared only the certificate of the Secretary of War that the proceedings of the court-martial were forwarded to the Secretary of War for the action of the President, and that "the proceedings, findings, and sentence are approved;" but it was held that the order was valid, though it did not appear that the President personally examined the proceedings and approved the execution of the sentence. Criticism was made in that opin
ion of Runkle v. United States, 122 U. S.
543, 30 L. ed. 1167, 7 Sup. Ct. Rep. 1141, upon the ground that the circumstances of that case were so exceptional as to render it an unsafe precedent in any other. It was held in that case that there was no sufficient evidence that the action of the courtmartial was approved, and it followed that the officer was never legally dismissed
the service. No such criticism can be made here, as it not only appears from the letter of February 8 that the sentence of the court had been approved by the President, but his approval distinctly appears at the foot of the brief.
We find nothing in this case of which the petitioner has any just reason to complain. The proceedings of the court-martial were conducted with a substantial, if not a literal, conformity to the law, and we must presume, at least, that there was sufficient evidence to support the sentence. While drunkenness is not ordinarily considered as criminal, the intoxication of a naval officer while on duty is a gross breach of discipline, and liable to be attended by very serious consequences. Congress evidently acted with forbearance and generosity in reinstating
(197 U. S. 356) GUILFORD B. KEPPEL, Trustee, etc.,
TIFFIN SAVINGS BANK.
Bankruptcy-retention of preference until judgment of avoidance does not prevent proof of claim.
creditor of a bankrupt, who has in good faith received a preference voidable under the bankrupt act of July 1, 1898, § 67e (30 Stat. at L. 565, chap. 541, U. S. Comp. Stat. 1901, p. 3449), solely because given within four months prior to the filing of the petition in bankruptcy, and who has in good faith retained the preference until deprived thereof by the judgment of a court in a suit by the trustee, still may prove the debt so voidably preferred, notwithstanding the provision of § 579 that "the claims of creditors who have received preferences shall not be allowed unless such creditors shall surrender their preferences."
Argued and submitted January 6, 1905. Decided April 3, 1905.
0%. N A CERTIFICATE from the United States Circuit Court of Appeals for the Sixth Circuit presenting the question whether the creditor of a bankrupt, who has in good faith received a merely voidable preference, may prove his claim, where he has retained the preference until deprived thereof by the judgment of a court in a suit by the trustee. Answered in the affirmative.
Statement by Mr. Justice White:
Charles A. Goetz became a voluntary bankrupt on October 12, 1900. George B. Keppel, the trustee, sued the Tiffin Savings Bank in an Ohio court to cancel two realestate mortgages executed by Goetz, one to secure a note for $4,000 and the other a note for $2,000. The mortgage to secure the $4,000 note was made more than four months before the adjudication in bankruptcy. The mortgage securing the $2,000 note was executed a few days before the bankruptcy, the mortgagor being at the time insolvent and intending to prefer the bank. The bank defended the suit, averring its good faith and asserting the validity of both the securities. In a cross petition the enforcement of both mortgages
was prayed. The court held the mortgage securing the $4,000 note to be valid, and the mortgage securing the $2,000 note to be void. The trustee appealed to a circuit court, where a trial de novo was had. At such trial the attorney for the bank stated to the court that the bank waived any claim to a preference as to the $2,000 note, but that he could not assent to a judgment to that effect. A judgment was entered sustaining the security for the $4,000 note and avoiding that for the $2,000 note.
it is to be observed that the facts stated in
The bank subsequently sought to prove that it was a creditor of the estate upon the note for $2,000, and upon two other unsecured notes, aggregating $835. The referee refused to allow the proof, upon the ground that, as the bank had compelled the trustee to sue to cancel the security, and a judgment nullifying it had been obtained, the bank had lost the right to prove any claim against the estate. The district judge, upon review, reversed this ruling. The cir-itor who has not surrendered a preference cuit court of appeals to which the issue was taken, after stating the case as above recited, certified questions for our determination.
until compelled to do so by the decree of a court cannot be allowed to prove any claim against the estate. On the other hand, it is urged that no such penalty is imposed by the bankrupt act, and hence the creditor,
Messrs. John C. Royer, Henry Weller, on an extinguishment of a preference, by and Bunn & Royer for Keppel.
Messrs. George E. Seney, John L. Lott, and Milton Sayler for the bank.
Mr. Justice White, after making the foregoing statement, delivered the opinion of the court:
whatever means, may prove his claims. These contentions must be determined by the text, originally considered, of § 57g of the bankrupt act, providing that "the claims of creditors who have received preferences shall not be allowed unless such 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:
"First. Can a creditor of a bankrupt, who has received a merely voidable preference, and who has in good faith retained such preference until deprived thereof by the judgment of a court upon a suit of the trustee, thereafter prove the debt so voidably preferred?
is nowhere any prohibition against the proof of a claim by a creditor who has had a preference, where the preference has disappeared as the result of a decree adjudging the preferences to be void, unless that result arises from the provision in question. We say also from the text as originally considered, 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 competent, in explanation of the judgment of the Ohio circuit court in favor of the trustee and against the bank in respect to its $2,000 mortgage, to show the disclaimer made in open court by the attorney representing the bank, of any claim of preference, and the grounds upon which the bank declined to consent to a judgment in favor of the trustee?
"Third. If the failure to 'voluntarily' surrender the mortgage given to secure the $2,000 note operates to prevent the allowance of that note, does the penalty extend to and require the disallowance of both the other claims?"
Before we develop the legal principles essential to the solution of the first question,
eral courts, which are referred to in the margin,† denying the right of a creditor to prove his claim, after the surrender of a preference by the compulsion of a decree or judgment, such decisions rest not upon an analysis of the text of the act of 1898 alone considered, but upon what were deemed to have been analogous provisions of the act of 1867 and decisions thereunder. We omit, therefore, further reference to these decisions, as we shall hereafter come to consider the text of the present act by the light thrown upon it by the act of 1867 and the judicial interpretation which was given to that act.
The text is, that preferred creditors shall
†Re Greth, 112 Fed. 978; Re Keller, 109 Fed. 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 the meaning of this provision, guided by the cardinal rule which requires that it should, if possible, be given a meaning in accord with the general purpose which the statute was intended to accomplish.
We think it clear that the fundamental purpose of the provision in question was to secure an equality of distribution of the assets of a bankrupt estate. This must be the case, since, if a creditor having a preference retained the preference, and at the same time proved his debt and participated in the distribution of the estate, an advantage would be secured not contemplated by the law. Equality of distribution being the purpose intended to be effected by the provision, to interpret it as forbidding a creditor from proving his claim after a surrender of his preference, because such surrender was not voluntary, would frustrate the object of the provision, since it would give the bankrupt estate the benefit of the surrender or cancelation of the preference, and yet deprive the creditor of any right to participate, thus creating an inequality. But it is said, although this be true, as the statute is plain, its terms cannot be disregarded by allowing that to be done which it expressly forbids. This rests upon the assumption that the word "surrender" necessarily implies only voluntary action, and hence excludes the right to prove where the surrender is the result of a covery compelled by judgment or decree.
in the statute. This would disregard the elementary rule that a penalty is not to be readily implied, and, on the contrary, that a person or corporation is not to be subjected to a penalty unless the words of the statute plainly impose it. Tiffany v. National Bank, 18 Wall. 409, 410, 21 L. ed. 862, 863. If it had been contemplated that the word "surrender" should entail upon every creditor the loss of power to prove his claims if he submitted his right to retain an asserted preference to the courts for decision, such purpose could have found ready expression by qualifying the word "surrender" so as to plainly convey such meaning. Indeed, the construction which would read in the qualification would not only create a penalty alone by judicial action, but would necessitate judicial legislation in order to define what character and degree of compulsion was essential to prevent the surrender in fact from being a surrender within the meaning of the section.
It is argued, however, that courts of bankruptcy are guided by equitable considerations, and should not permit a creditor who has retained a fraudulent preference until compelled by a court to surrender it, to prove his debt, and thus suffer no other loss than the costs of litigation. The fallacy lies in assuming that courts have power to inflict penalties, although the law has not imposed them. Moreover, if the statute be re-interpreted as it is insisted it should be, there would be no distinction between honest and fraudulent creditors, and therefore every creditor who in good faith had acquired an advantage which the law did not permit him to retain would be subjected to the forfeiture simply because he had presumed to submit his legal rights to a court for determination. And this accentuates the error in the construction, since the elementary principle is that courts are created to pass upon the rights of parties, and that it is the privilege of the citizen to submit his claims to the judicial tribunals,-especially in the absence of malice and when
The word "surrender," however, does not exclude compelled action, but, to the contrary, generally implies such action. That this is the primary and commonly accepted meaning of the word is shown by the dictionaries. Thus, the Standard Dictionary defines its meaning as follows: "1. To yield possession of to another upon compulsion or demand, or under pressure of a superior force; give up, especially to an enemy in warfare; as, to surrender an army or a fort." And in Webster's International Dictionary the word is primarily defined in the same way. The word, of course, also some-acting with probable cause,-without subtimes denotes voluntary action. In the statute, however, it is unqualified, and generic, and hence embraces both meanings. The construction which would exclude the primary meaning, so as to cause the word only to embrace voluntary action, would read into the statute a qualification, and this in order to cause the provision to be in conflict with the purpose which it was intended to accomplish,-equality among creditors. But the construction would do
jecting himself to penalties of an extraordinary character. The violation of this rule, which would arise from the construction, is well illustrated by this case. Here, as we have seen, it is found that the bank acted in good faith, without knowledge of the insolvency of its debtor and of wrongful intent on his part, and yet it is asserted that the right to prove its lawful claims against the bankrupt estate was forfeited simply because of the election to put the trustee to proof, in a court, of the existence of the facts made essential by the law to an invalidation 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 an act of bankruptcy, said-italics of the assets of the estate by retaining a mine (p. 75.): preference, and at the same time collecting dividends from the estate by the proof of his claim against it, and consequently that whenever the preference has been abandoned or yielded up, and thereby the danger of inequality has been prevented, such creditor is entitled to stand on an equal footing with other creditors and prove his claims.
Is the contention well founded that this meaning which we deduce from the text of the surrender clause of the present act is so in conflict with the rule generally applied in bankruptcy acts, and is, especially, so contrary to the act of 1867 and the construction given to it, that such meaning cannot be considered to have been contemplated by Congress in adopting the present act, and hence a contrary interpretation should be applied?
"The next part of the prayer is that the claim should be disallowed. But though the assignment of the property may be invalid, that will not invalidate the debt of the respondents. We could not, therefore, disallow the claim, or expunge the proof, if the claim had been converted to a proof; all that we can do is to restrain the respondents from receiving any dividends until they give up the property."
Thus the English rule substantially conformed to the construction we have given to the bankruptcy act before us.
Neither our bankrupt act of 1800 (2 Stat. at L. 19, chap. 19) nor that of 1841 (5 Stat. at L. 440, chap. 9) contained a surrender clause, or any provision generally denying the right of a creditor of a bankrupt to prove his debt in the event that he had re
bankruptcy courts must necessarily have exercised the power of protecting the estate by preventing a creditor having an otherwise provable debt, who retained that which belonged to the estate, from at the same time taking dividends from it.
Without attempting to review the Eng-ceived a preference. But, under those acts, lish bankruptcy acts, or the provisions contained therein concerning what constituted provable debts, and the decisions relating thereto, it is clear that under those acts, where a debt was otherwise provable and the creditor had acquired a lien to which he was not entitled, the English courts in bankruptcy did not imply a forfeiture by refusing to allow proof of the debt because there had not been a voluntary surrender of the preference. On the contrary, where claims were filed against the estate by one who was asserted to have retained a preference, a well-settled practice grew up, enforced from equitable considerations. The practice in question was followed in the case of Ex parte Dobson, 4 Deacon & C. 69, decided in 1834, and was thus stated in the opinion of Sir G. Rose (p. 78):
The purpose of Congress when a forfeiture or penalty was intended, not to leave it to arise from mere construction, but to expressly impose such penalty or forfeiture, is well illustrated by the bankrupt act of 1800, wherein numerous penalties and forfeitures were explicitly declared. Two instances are illustrative. By § 16 it was provided: "That if any person or persons shall fraudulently or collusively claim any debts, or claim or detain any real or personal estate of the bankrupt, every such person shall forfeit double the value thereof, to and for the use of the creditors." And by § 28 it was provided that a creditor suing out a commission, who subsequently accepted a preference, "shall forfeit and lose, as well his or her whole debts, as the whole he or she shall have taken and received, and shall pay back, or deliver up the same, or the full value thereof, to the assignee or assignees who shall be appointed or chosen under such commission, in manner aforesaid, in trust for and to be divided among the other creditors of the said bankrupt, in proportion to their respective debts."
"I apprehend the practice to be settled, where a creditor applies to prove a debt, and claims a right to property to which the commissioners think he has no lien, that the commissioners admit the proof, and leave the question to be controlled merely by retention of the dividend. This was settled by the case of Ex parte Ackroyd [1 Rose, 391], where the commissioners had rejected the proof of a creditor, because he had received a portion of his debt, which the assignees contended he was bound to refund; but when the question came before Sir John Leach, as vice chancellor, he decided that the proof of the debt was not to be rejected, because there was a question to be tried between the bankrupt's assignees and the cred-render clause: itor, although it was proper that no dividend should be paid on that proof, until the question was determined."
The bankrupt act of 1867 (14 Stat. at L. 528, chap. 176), contained the following sur
Any person who after the approval of this act shall have accepted any preference, having reasonable cause to
believe that the same was made or given by | the debtor, contrary to any provision of this act, shall not prove the debt or claim on account of which the preference was made or given, nor shall he receive any dividend therefrom until he shall first have surrendered to the assignee all property, money, benefit, or advantage received by him under such preference."
And § 35 of the act conferred power upon the assignee to sue to set aside and recover illegal preferences, transfers, etc., but there was not contained in the section any provision prohibiting the proof of claims after recovery by the assignee. In § 39 of the act, however, which was found under the head of involuntary bankruptcy, there was contained an enumeration of the various acts which would constitute acts of bankruptcy, and following a grant of authority to the assignees to sue for and recover property transferred, etc., by the bankrupt contrary to the act, the section concluded with the declaration that when the recipient had reasonable cause to believe that a fraud on the act was intended, and that the debtor was insolvent, "such creditor shall not be allowed to prove his debt in bankruptcy."
Passing the present consideration of the judicial construction given to the act of 1867, and treating, as we believe should be done, the restriction as to the proof of debts expressed in § 39 as applicable to voluntary as well as involuntary bankruptcy, we think, as a matter of original interpretation, the surrender clause of the act of 1867 not only fortifies, but absolutely sustains, the construction which we have given to the surrender clause of the act of 1898. Whilst the surrender clause of the act of 1867 changed the method of procedure prevailing under the English rule, and presumptively also obtaining under the acts of 1800 and 1841, by which a creditor holding a preference might prove his claim, but was allowed to obtain no advantage from so doing until he had surrendered his preference, it cannot, we think, in reason be considered that this mere alteration in the practice to be followed was intended in and of itself to impose a penalty upon a creditor who did not voluntarily surrender his preference. And this we think is demonstrated when it is seen that, after making the change as to the procedure in the proof of debts by preferred creditors, there was subsequently embodied in § 39 an express prohibition, in the nature of a penalty, forbidding the proof of debt by a creditor who came within the purview of the section. Either that provision solely related to proof of debts embraced in the previous surrender clause or it did not. If it did, then the expression of the penalty in § 39 indicates that it was not
deemed that the surrender clause contained provision for the penalty, otherwise § 39 would in that regard be wholly superfluous. If, on the other hand, it be considered that § 39 embraced other debts or claims against the estate than those to which the surrender clause related, then the expression of the penalty in § 39, under the rule of expressio unius, could not by implication be read into the previous surrender clause. That is to say, if § 23 and § 39 of the act of 1867 be considered as not in pari materia, then it follows that the former, the surrender clause,-standing alone, did not impose the penalty or forfeiture provided for in the latter. If they were in pari materia, then the penalty, whilst applicable and controlling as to both, because of its expression in the later section, cannot be said to have existed alone in and by virtue of an earlier section, wherein no penalty was expressed. The decisions of the lower Federal courts interpreting the sections in question, as they stood prior to the amendment of § 39 by the act of 1874, hereafter to be referred to, were numerous, and we shall not attempt to review them in detail. They will be found collected in a note contained in the eleventh edition of Bump on Bankruptcy, pp. 550 et seq. Disregarding the discord of opinion shown by those decisions concerning what constituted an involuntary surrender,-that is, whether it was involuntary if made at any time after suit brought by the assignee, or was only so after recovery by the force of a judgment or decree,-and putting out of view also the differences of opinion which were engendered by the fact that the forfeiture imposed by § 39 was found in that portion of the act of 1867 which related to involuntary bankruptcy, we think the decisions under the act of 1867, prior to the amendment of 1874, may be classified under four headings.
First. The cases which held that the prohibition of § 39 against the proof of debt operated as a bar to such proof, even although there was a voluntary surrender, where the preference had the characteristics pointed out in § 39. These cases were, however, contrary to the great weight of authority under the act, and the construction which they enforced may be put out of view.
Second. Those cases which, whilst treating the surrender clause as giving a creditor an alternative which he might exercise without risk of penalty or forfeiture, yet held that by the operation of § 39 upon the surrender clause the creditor lost the option to prove his claim, when the surrender was compelled by a judgment or decree at the suit of the assignee. The cases enforcing this interpretation constituted the