weight of authority, and such construction | the surrender clause alone prohibited a surmay, therefore, be said to have been that render after recovery by the assignee. This generally accepted, and, in our judgment, was the correct one.

class of cases is illustrated by Re Richter, 1 Dill. 544, 4 Nat. Bankr. Reg. 221, Fed. Cas. No. 11,803. In that case a creditor who, in consequence of a recovery by the assignee, had surrendered a preference, sought to prove his claim against the estate, and his right to do so was resisted. Analyzing the act and stating the different constructions of which it was susceptible, the

These cases, which thus held that the loss of the right to prove, after compulsory surrender, arose not from the surrender clause independently considered, but solely from the operation upon that clause of § 39, are exemplified by the case of Re Leland, 7 Ben. 156, Fed. Cas. No. 8,230, opinion of Blatchford, J. In that case, aft-court expressly declared that the correct er holding (p. 162) that the prohibition of § 39 applied as well to cases of voluntary as to cases of involuntary bankruptcy, the court came to consider the surrender clause of § 23 as affected by the penalty provided for in § 39, and said:

view was to construe §§ 23, 35, and 39 together, and that the result of so doing would be to annex to both §§ 35 and 23 the penalty provided in § 39. The surrender clause was then noticed, it being said:

"It is urged by the claimants that this "This provision is to be construed in con- refusal was erroneous, because they had, benection, and in harmony, with the provision fore the time when they made their motion, of the 23d section, before cited. If, under surrendered to the assignee all property rethe 23d section, the preferred creditor were ceived by them under the preference. This allowed to surrender to the assignee the devolves upon us the duty of interpreting property received in preference, even after the meaning of the word "surrender," as it it had been recovered back by the assignee, is here used. And it is our opinion that a as mentioned in the 39th section, so as to creditor who receives goods by way of be able to prove his debt, no creditor taking fraudulent preference, and who refuses the a preference would ever be debarred from demand therefor which the assignee is auproving his debt. If, under the 39th sec- thorized to make (§ 15), denies his liabiltion, it were held that the mere taking of ity, allows suit to be commenced by the asa preference by a creditor would debar him signee, defends it, goes to trial, is defeated, from proving his debt, without the precedent and judgment passes against him, which he necessity for a recovery back by the assignee satisfies on execution, cannot be said, withof the property conveyed in preference, there in the meaning of the statute, to have surnever could be any scope for the operation rendered to the assignee the property reof the 23d section in respect to a surren-ceived by him under such preference. He der." has surrendered nothing."

Thus clearly pointing out that by the surrender clause alone the creditor would not be debarred from proving his claim, if in fact there had been a surrender, whether voluntary or not, but that, as a result solely of the prohibition of § 39, the creditor would be barred after recovery by the assignee.

Third. Cases which treated the surrender clause as in and of itself forbidding a surrender after recovery, because the recovery authorized by § 35 was the antithesis of the surrender and precluded a surrender after recovery. This class of cases in effect treated the prohibition expressed in § 39 as unnecessary, quoad the subject-matters to which §§ 23 and 35 were addressed. The cases, however, were few in number, and are illustrated by the case of Re Tonkin, 4 Nat. Bankr. Reg. 52, Fed. Cas. No. 14,094.

As an alternative, however, to this view, and treating the sections referred to as in pari materia, it was reiterated that § 23 was limited and controlled by the penalty provided in § 39.

We need not further notice the cases under the act of 1867, because of the action of Congress on the subject. In 1874 (18 Stat. at L. 178, chap. 390) § 39 of the act of 1867 was amended and re-enacted. That amendment consisted of omitting the forfeiture clause as originally contained in the section, and substituting in its stead the following proviso:

"Provided,

and such person, if

a creditor, shall not, in cases of actual fraud on his part, be allowed to prove for more than a moiety of his debt; and this limitation on the proof of debts shall apply to cases of voluntary as well as involuntary bankruptcy."

Plainly, this amendment not only abol

Fourth. Cases which, without seemingly considering the incongruity of the reason-ished the penalty provided in § 39 as origiing, adopted both theories; treated §§ 23, 35, and 39 as in pari materia, and hence applied the prohibition of § 39 to the other two sections, and yet reasoned to show that

nally enacted, since it allowed a creditor to prove his claim for the whole amount thereof after recovery against him if he had not been guilty of actual fraud, and, even

which reference has just been made, and its action in so doing was affirmed by this court in Streeter v. Jefferson County Nat. Bank, 147 U. S. 40, 37 L. ed. 70, 13 Sup. Ct. Rep. 236.

in case of actual fraud, after recovery, per- | (1879) 19 Nat. Bankr. Reg. 283, Fed. mitted him to prove for a moiety. The Cas. No. 7,627, per Nixon, D. J.; Re Cadamendment clearly also was repugnant to well (1883) 17 Fed. 693, per Coxe, J. that construction of the act of 1867 given The meaning of the amendment of 1874 was in some of the cases to which we have re- considered by the court of appeals of New ferred under the third classification, wherein York in the case of Jefferson County Nat. in the reasoning employed it was assumed Bank v. Streeter, 106 N. Y. 186, 12 N. E. that a forfeiture or penalty might be im-706. The New York court expressly adoptplied alone from the terms of the surrendered the construction given in the cases to clause, irrespective of the operation of § 39. This results from the very words of the amendment, which says, "and this limitation on the proof of debts shall apply," etc., showing that the restriction on the right to prove after a compulsory yielding up of a preference was deemed by Congress to result not from the surrender clause, but from the limitation expressly declared by 39 as amended, which operated a qualification of the broad terms of the surrender clause. It manifestly also arises from the fact that, whilst Congress plainly intended by the amendment to make a change in the rigor of the rule previously obtaining, the phraseology of the surrender clause as originally found in the act was not altered.

After the adoption of the amendment of 1874 it is true that in one or two instances it was held that the amendment, instead of mitigating the severity of § 39 as it stood before the amendment, had increased it by adding an additional limitation, viz., prohibiting a preferred creditor who had been guilty of actual fraud from proving for more than one half of his claim, even where he had voluntarily surrendered his preferBut these were isolated cases, since practically the otherwise universal construction was that the amendment was remedial and intended by Congress to mitigate, even in cases of actual fraud, the severity of the prohibition of § 39 as originally enacted.

The import of the amendment was tersely stated by Mr. Justice Clifford in Re Reed, 3 Fed. 798, 800, as follows:

"Beyond doubt the question must depend upon the true construction of the act of Congress, and I am of the opinion that Congress intended to moderate the rigor of the prior rules and to allow the creditor, after payment back of the preference, whether by suit or otherwise, to prove their whole debt, in case they had been guilty of no actual fraud."

And such construction was also expounded in the following cases: Re Currier (1875) 2 Low. Dec. 436, Fed. Cas. No. 3,492; Burr v. Hopkins (1875) 6 Biss. 345, Fed. Cas. No. 2,192, per Drummond, J.; Re Black (1878) 17 Nat. Bankr. Reg. 399, Fed. Cas. No. 1,459, per Lowell, J.; Re Newcomer (1878) 18 Nat. Bankr. Reg. 85, Fed. Cas. No. 10,148, per Blodgett, J.; Re Kaufman 25 S. C.-29.

It follows that the construction which we at the outset gave to the text of the act of 1898, instead of being weakened, is absolutely sustained by a consideration of the act of 1867, both before and after the amendment of 1874, and the decisions construing the same, since in the present act, as we have said, there is nowhere found any provision imposing even the modified penalty which was expressed in the amendment of 1874. The contention that, because the act of 1898 contains a surrender clause, therefore it must be assumed that Congress intended to inflict the penalty originally imposed by § 39 of the act of 1867, must rest upon the erroneous assumption that that penalty was the result of the surrender clause alone. But this, as we have seen, is a misconception, since from the great weight of judicial authority under the act of 1867, as well as by the express enactment of Congress in the amendment of 1874 and the decisions which construed that amendment, it necessarily results that the penalty enforced under the act of 1867 arose not from the surrender clause standing alone, but solely from the operation upon that clause of the express prohibition contained in § 39 of that act. When, therefore, Congress in adopting the present act omitted to reenact the provision of the act of 1867, from which alone the penalty or forfeiture arose, it cannot in reason be said that the omission to impose the penalty gives rise to the implication that it was the intention of Congress to re-enact it. In other words, it cannot be declared that a penalty is to be enforced because the statute does not impose it.

And. irrespective of this irresistible implication, a general consideration of the present act persuasively points out the purpose contemplated by Congress in refraining from re-enacting the penalty contained in § 39 of the act of 1867. Undoubtedly the preference clauses of the present act, differing in that respect from the act of 1867, as is well illustrated by the facts of this case, include preferences where the creditor receiving the same acted without knowledge

of any wrongful intent on the part of the | they had knowledge of such insolvency or debtor, and in the utmost good faith. Pirie not.

V. Chicago Title & T. Co. 182 U. S. 454, By § 67, paragraph e, of the bankrupt act, 45 L. ed. 1179, 21 Sup. Ct. Rep. 906. Hav-it is provided: ing thus broadened the preference clauses so as to make them include acts never before declared by Congress to be illegal, it may well be presumed that Congress, when it enacted the surrender clause in the present act, could not have contemplated that that clause should be construed as inflicting a penalty upon creditors coming within the scope of the enlarged preference clauses of the act of 1898, thereby entailing an unjust and unprecedented result.

Our conclusion, therefore, is that the first question propounded must be answered in the affirmative, and that the two other questions require no response.

And it is ordered accordingly.

Mr. Justice Day, dissenting:

I am unable to agree with the construction given to the sections of the bankruptcy act under consideration, and, because of the importance of the questions involved, have deemed proper a statement of the conclu

sions reached.

"And all conveyances, transfers, or encumbrances of his property, made by a debtor at any time within four months prior to the filing of the petition against him, and while insolvent, which are held null and void as against the creditors of such debtor by the laws of the state, territory, or district in which such property is situate, shall be deemed null and void under this act against the creditors of such debtor, if he be adjudged a bankrupt, and such property shall pass to the assignee and be by him reclaimed and recovered for the benefit of the creditors of the bankrupt."

Under 60 of the bankruptcy act of 1898 it was provided:

"a. 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 judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class.

"b. If a bankrupt shall have given a preference within four months before the filing of a petition, or after the filing of the petition and before the adjudication, and the person receiving it or to be benefited thereby, or his agent acting therein, shall have

had reasonable cause to believe that it was

Notwithstanding the first question propounded by the court of appeals presupposes that the $2,000 mortgage was a preference within the meaning of the bankrupt act, it is argued on behalf of the creditors that, although the mortgage made a few days prior to the bankruptcy proceedings and when the bankrupt was insolvent, was void under § 6343 of the Revised Statutes of Ohio, as amended April 26, 1898 (93 Ohio Laws, p. 290), read in connection with § 67, paragraph e, of the bankruptcy act, it did not constitute a preference which must be surrendered preliminary to proof of the creditor's claim because there was no actual transfer of any property to the creditor, and the only thing obtained was a void mort-parting with the property or the possession gage.

The Ohio statute makes provision, among other things, as to sales, etc., in trust or otherwise, in contemplation of insolvency, or with a design to prefer one or more credit

ors to the exclusion, in whole or in part,

of others, and sets forth:

"And every such sale, conveyance, transfer, mortgage, or assignment made, by any debtor or debtors, in the event of a deed of assignment being filed within ninety (90) days after the giving [or doing] of such thing or act, shall be conclusively deemed and held to be fraudulent, and shall be held to be void as to the assignee of such debtor or debtors, where, upon proof shown, such debtor or debtors was or were actually insolvent at the time of giving or doing of such act or thing, whether he or

intended thereby to give a preference, it shall be voidable by the trustee, and he may recover the property or its value from such person."

In § 1, 25, of the act of 1898, a "transfer" is defined to include the sale and every other and different mode of disposing of or

of property, absolutely or conditionally, as a payment, pledge, mortgage, gift, or security.

This definition of a transfer covers a in express terms, and § 60 provides that mortgage given for the security of a debt preferences shall include transfers, the ef

fect of the enforcement of which would be to enable any one of the bankrupt's creditors to obtain a greater percentage of his debt than other creditors of the same class.

It is true that if the mortgage is void it can have no effect to diminish the estate of the bankrupt, but upon its face the mortgage is good as against the bankrupt and the creditors of the estate.

It is said that, the mortgage being void, the creditor had nothing to surrender, but

this assumes the invalidity of the security. I count of which the preference was made or Until set aside or voluntarily surrendered given, nor shall he receive any dividend it is a good encumbrance upon the property, whether regarded as a conditional conveyance or as a mere security for the debt. It could be set aside by the trustee upon proof of insolvency of the bankrupt and other conditions named in the act at the time of giving it; otherwise it would stand as a valid security, unless the creditor should elect to surrender it and make proof of his claim as a general creditor.

There seems to be no question that, upon its face, though void in the light of the facts found, this mortgage was one of the transfers of property which was invalidated by the act, it being given within the time limited, and at a time when the bankrupt was in fact insolvent, and expressly made void by the Ohio statute when read with the bankrupt act of 1898.

The answer to the first question requires a consideration of § 57g of the act of 1898, which, as it stood prior to the amendment of February 5, 1903 (32 Stat. at L. 797, chap. 487),1 read: "The claims of creditors who have received preferences shall not be allowed unless such creditors shall surrender their preferences." May a creditor who has received a preference, voidable by the act, contest the validity thereof, and, if it is declared invalid, still prove his debt upon surrender of his preference as though no contest had been had?

It was held by this court in Pirie v. Chicago Title & T. Co. 182 U. S. 438, 45 L. ed. 1171, 21 Sup. Ct. Rep. 876, that a creditor who had received a preference, although he did not have reason to believe that one was intended, could only keep the property transferred upon condition of refraining from proof of the balance of his debt.

therefrom until he shall first have surrendered to the assignee all property, money, benefit, or advantage received by him under such preference." Section 57g of the present act, prior to the amendment of February 5, 1903, required broadly that claims of creditors who have received preferences shall be surrendered, and that the same shall not be allowed unless this is done.

Under the former act the surrender was required of creditors who had accepted preferences, having reasonable cause to believe the same contrary to the provisions of the act, and such creditor could not receive any dividend until he had first surrendered the preference. In passing the act of 1898, Congress doubtless had before it prior legislation on the subject, and particularly the act of 1867, the most recent enactment on the subject.

Section 57g provides that all preferences, whether innocent or otherwise, shall be surrendered before the creditor can prove his claim, and the right of proof is not postponed until the surrender, but claims are not to be allowed unless creditors shall surrender their preferences. The element of time is indicated in the word "until," which means to the time of, or up to, while the use of "unless" more emphatically denies the right of proving the claim, save or except upon terms of relinquishing the preference.

In view of the purpose of the bankruptcy act to make an equal distribution of the bankrupt's estate among creditors of the same class and to avoid preferences made within four months, I think, having in view the first question put by the circuit court of appeals, that the sections of the law in question must be construed to put a creditIt was pointed out in that case, in the or who has received a merely voidable prefopinion of the court by Mr. Justice Mc-erence, which could be recovered from him Kenna, that § 60 in its various provisions by the trustee, to his election between strivpermitted a creditor who had innocently re-ing to retain that which he has received, and ceived a preference to hold it if he chose, and it could only be recovered by the trustee in the event that he had reasonable cause to believe that a preference was intended, in which case the trustee might recover the property or its value. But the innocent ereditor might keep the property transferred to him, although a preference within the definition of the act, upon terms of nonparticipation in the bankrupt estate in the general distribution to the creditors.

Section 23 of the bankruptcy act of 1867 provided: "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 acIU. S. Comp. St. Supp. 1903, p. 415.

voluntarily surrendering his preference, and filing his claim that he may participate with other unsecured creditors in the general distribution of the estate.

The law looks to a prompt, equal, and inexpensive distribution of the estate among those entitled thereto, and I do not think it was intended to permit a creditor to take the chances of litigation with the trustee, and, when defeated, still have the right to "surrender" his preference and participate in the distribution of the general estate. I think the surrender contemplated by the law is not the capitulation which comes after unsuccessful resistance, but is intended to require the creditor, who must be presumed to know the law, to make a prompt election and to stand or fall upon the

choice made. In other words it was not intend- | preferences must be surrendered as a condi