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 In the first and second of these an intent made a transfer of any of his property, and on the part of the bankrupt, either to hind-the effect of the enforcement of such judger, 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 intent is required.

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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 applica-It is admitted that such a judgment note tion, because they were decided under the was, at the time it was made and delivered act of 1867, which expressly required the under the law of the state of Wisconsin, a debtor to have acted with intent to give a legal and usual form of security for money preference. 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.

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edge or consent, and that such judgment | ity made or given by him within the meanwas not subject to attack by Nelson, and ing of the bankrupt act, and is void if accould not have been vacated or discharged companied by the facts made necessary by by any legal proceedings which might have that act to render securities void. These been instituted by him; nor could the levy facts are that the security was given 'in issued under the execution have been set aside contemplation of bankruptcy, and for the or vacated by Nelson, unless his filing his purpose of giving any creditor, indorser, voluntary petition in bankruptcy prior to surety or other person a preference or prithe sale, and obtaining an adjudication of ority over the general creditors of such bankruptcy thereunder, would have had that bankrupt.' effect, or by payment of the judgment.

words? It is understood that, while the bankrupt law was in operation, different interpretations were placed upon them in different circuits. By some judges they were held to mean contemplation of insolvency— of a simple inability to pay as debts should become payable-whereby his business would be broken up; this was considered to be a state of bankruptcy, the contemplation of which was sufficient. By other judges it was held that the debtor must contemplate an act of bankruptcy, or a voluntary application for the bankrupt law.

It is

"The inquiry whether this security was 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 the United States for the western district of Wisconsin. The act of bankruptcy therein alleged was in substance that while insolvent he suffered and permitted the said Sarah Johnstone, one of his creditors, to obtain preference upon his property, through legal proceedings, by the entry of said judgment and the levy thereunder upon his stock of goods, and failed to vacate or discharge the preference obtained through such legal proceedings at least five days before the sale of the property under such judgment and 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 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 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.

"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.

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 "The word 'bankruptcy' occurs many times mode of taking security for a debt, and judgments thus entered are treated as se- in this act. It is entitled 'An Act to Estabcurities, and an equitable jurisdiction exer-lish a Uniform System of Bankruptcy.' And cised over them by courts of law. In some the word is manifestly used in other parts 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 secur

of the law to describe a particular legal status, to be ascertained and declared by a judicial decree. It canot 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 bank

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ruptcy. He may confidently believe that his in this case must he have had this in conpersonal character, and the state of his af- templation? He gave the power of attor fairs, and the disposition of his creditors, ney on the 7th of April; the judgment was are such that when they shall have examined confessed and entered upon the next day; into his condition they will extend the times the execution was taken out and levied and of payment of their debts and enable him to the lien created thereby on the 22d of May; resume his business. A person not a mer- and five days afterwards, being less than chant, banker, etc., and consequently not lia- two months after the execution of the power, ble to be proceeded against and made a bank. the debtor presented the petition under rupt, though insolvent, may have come to a which he was decreed a bankrupt. The determination that he will not petition. The only act done by the debtor was the execu contemplation of one of these states*not be- tion and delivery of the power of attorney. ing in fact the contemplation of the other, It was a security by him made or given only to say that both were included in a term by reason of that instrument. What folwhich describes only one of them would be lowed were acts of the creditor and of ofa departure from sound principles of inter- ficers of the law, with which the debtor is pretation. Moreover, the provisos in this no more connected than with the delivery by section tend to show what was the real mean- the creditor of a deed to the office of the ing of this first enacting clause. The ob-register, to be recorded, or the act of the ject of these provisos was to protect bona register in recording it. It would seem that fide dealings with the bankrupt more than if the intent of the debtor is to give a legal two months before the filing of the petition quality to a transaction, it must be an inby or against him, provided the other party tent accompanying an act done by himself, was ignorant of such an intent on the part and not an intent or purpose arising in his of the bankrupt as made the security invalid mind afterwards, while third persons are under the first enacting clause. And the acting; and that consequently we must inlanguage is: 'Provided, that the other quire whether the debtor contemplated party to any such dealings or transactions bankruptcy when he executed the power. had no notice of a prior act of bankruptcy or of the intention of the bankrupt to take the benefit of this act.' These facts, of one of which a bona fide creditor must have notice, to render his security void if taken more than two months before the filing of the petition, can hardly be supposed to be different from the facts which must exist to render the security void under the first clause; or, in other words, if it be enough for the debtor to contemplate a state of insolvency it could hardly be required that the creditor should have notice of an act of bankruptcy or an intention to take the benefit of the act. It would seem that notice to the creditor of what is sufficient to avoid the security must deprive him of its benefits, and, consequently, if he must have notice of some thing more than insolvency, something more than insolvency is required to render the security invalid, and that we may safely take this description of the facts which a 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; Morgan v. Brundrett, 5 Barn. & Ad. 297. And see the opinion of Patterson, J., in the last case.

"Considering, then, that it is necessary to show that the debtor contemplated an act of bankruptcy, or a decree adjudging him a bankrupt on his own petition, at what time

"It is true this construction would put it in the power of creditors, by taking a bond and warrant of attorney while the debtor was solvent and did not contemplate bankruptcy, to enter up a judgment and issue execution, and by a levy acquire a valid lien, down to the very moment when the title of the assignee began. But this was undoubtedly so under the statute of James, which, like ours, contained no provision to meet this mischief; and it became so great that by the 108th section of the revising act of 6 Geo. IV. it was enacted that 'no creditor, though for a valuable consideration, who shall sue out execution on any judgment obtained by default, confession, or nil dicit, shall avail himself of such execution, to the prejudice of other fair creditors, but shall be paid ratably with such creditors.' If the bankrupt act of 1841 had continued to exist, a similar addition to its provisions would doubtless have become necessary."

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 we shall presently see, such provisions do not affect the question before us now.

In Wilson v. City Bank, 17 Wall. 473, 21 L. ed. 723, decided under the provisions of the act of 1867, it was held that something more than passive nonresistance in an in

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timation is given that the bankrupt must file a petition under any circumstances. While his right to do so is without any other limit than his own sworn averment that he is unable to pay all his debts, there is not a word from which we can infer any legal ob ligation on him to do so. Such an obligation would take from the right the character of a privilege, and confer on it that of a burdensome and, often, ruinous duty. It is, in its essence, involuntary bankruptcy. But the initiation in this kind of bankruptcy is, by the statute, given to the creditor, and is not imposed on the debtor. And it is only given to the creditor in a limited class of cases. The argument we are combatting goes upon the hypothesis that there is an other class given to the creditor by inference, namely, where the debtor ought himself to go into court as a bankrupt and fails to do it. We do not see the soundness of this implication from anything in the statute.

"There is nothing morally wrong in their course [of the defendants] in this matter. They were sued for a just debt. They had no defense to it, and they made none. To have made an effort, by dilatory or false pleas, to delay a judgment in the state court, would have been a moral wrong and a fraud upon the due administration of the law. There was no obligation on them to do this, either in law or in ethics. Any other creditor whose debt was due could have sued as "We do not construe the act as intended well as this one, and any of them could have to cover all cases of insolvency to the exinstituted compulsory bankrupt proceedings. clusion of other judicial proceedings. It is The debtor neither hindered nor facilitated very liberal in the classes of insolvents which any one of them. How is it possible from it does include, and needs no extension in this to infer, logically, an actual purpose to this direction by implication. But it still prefer one creditor to another, or to hinder leaves, in a great majority of cases, parties or delay the operation of the bankrupt act? who are really insolvent to the chances that "It is said, however, that such an intent their energy, care, and prudence in business is a legal inference from such inaction by may enable them finally to recover without the debtor, necessary to the successful opera. disastrous failure or positive bankruptcy. tion of the bankrupt law; that the grand All experience shows both the wisdom and feature of that law is to secure equality of justice of this policy. Many find themdistribution among creditors in all cases of selves with ample means, good credit, large insolvency, and that, to secure this, it is the business, technically insolvent, that is, unlegal duty of the insolvent, when sued by able to meet their current obligations as fast one creditor in an ordinary proceeding like- as they mature. But by forbearance of credly to end in judgment and seizure of prop-itors, by meeting only such debts as erty, to file himself a petition of voluntary bankruptcy, and that this duty is one to be inferred from the spirit of the law, and is essential to its successful operation.

"The argument is not without force, and has received the assent of a large number of the district judges, to whom the administration of the bankrupt law is more immediately confided. We are, nevertheless, not satisfied of its soundness. We have already said that there is no moral obligation on the part of the insolvent to do this, unless the statute requires it, and then only because it is a duty imposed by the law. It is equally clear that there is no such duty imposed by that act in express terms. It is, therefore, an argument solely of implication. This implication is said to arise from the supposed purpose of the statute to secure equality of distribution in all cases of insolvency, and to make the argument complete it is further necessary to hold that this can only be done in bankruptcy proceedings under that statute. Does the statute justify so broad a proposition? Does it in effect forbid all proceedings to collect debts in cases of insolvency, in other courts and in all other modes than by bankruptcy? We do not think that its purpose of securing equality of distribution is designed to be carried so far. As before remarked, the vol. untary clause is wholly voluntary. No in

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pressed, and even by the submission of some of their property to be seized on execution, they are finally able to pay all, and to save their commercial character and much of their property. If creditors are not satisfied with this, and the parties have committed an act of bankruptcy, any creditor can institute proceedings in a bankrupt court. But until this is done, their honest struggle to meet their debts and to avoid the breaking up of all their business is not, of itself, to be construed into an act of bankruptcy or a fraud upon the act.

а

"It is also argued that, inasmuch as to lay by and permit one creditor to obtain judgment and levy on property necessarily gives that creditor a preference, the debtor must be supposed to intend that which he knows will follow. The general legal prop osition is true, where a person does positive act, the consequences of which he knows beforehand, he must be held to intend those consequences. But it cannot be inferred that a man intends, in the sense of desiring, promoting, or procuring it, a re-* sult of other persons' acts, when he contributes nothing to their success or completion, and is under no legal or moral obliga tion to hinder or prevent them.

"Argument confirmatory of these views may be seen in the fact that all the other acts or modes of preference of creditors