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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, chap. 541, acts of bankruptcy are defined as follows: “Acts of bankruptcy by a person shall consist of his having (1) conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, any part y: of his property with intent to hinder, delay, : or defraud his creditors, or any of them; * or (2) transferred, while"insolvent, any portion of his property to one or more of his creditors, 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 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; 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.] 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 intent 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.” 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 1808 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 gore a sale of the property affected, “vacated or discharged such preference.” *There is a similar difference in the two statutes in regard to the preferences declared to be avoided. The act of 1867 enacted that if any person, being insolvent, or in contemplation of insolvency, within four months before the
filing of the petition by or against him, “with a view to give a preference to any creditor or person, having a claim against him, or who is under any liability for him, procures or suffers any part of his property to be attached, sequestered, or seized on execution,” or makes any payment, pledge, or conveyance of any part of his property, the person receiving such payment, o or conveyance, or to be benefited thereby, “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 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.” 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 to thereby had reasonable cause to believe the: defendant "was insolvent and in contempla • tion of bankruptcy, or (3) that such lien was sought and permitted in fraud of the provisions of this act.” 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 3d clause of $ 3, omitting the word
“procure,” and the phrase “intent to give a preference,” of the former statute, makes it an act of bankruptcy if the debtor has “suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceedings,” and has not “vacated or discharged such preference” five days before a sale of the property. By $ 60 he is “deemed to have given a preference” if, being insolvent, he has “suffered a judgment to be entered against himself in favor of any person, - and the effect of the enforcement of such judgment will be to enable any one of his creditors to obtain a greater ercentage of his debt” than other creditors. É. $ 67, subd. c, a lien obtained in any suit, “including an attachment upon mesne process, or a judgment by confession,” begun within four months before the filing of the petition in bankruptcy, is dissolved by the adjudication in bankruptcy, not only if “such lien was sought and permitted in fraud of the provisions of this act,” but also if “its existence and enforcement will work a preference.” And by subd. f of the same section “all levies, judgments, attachments, or or other liens obtained through legal proãceedings against a person, who is insolvent.” * 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 attorney 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 #. 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 adudication 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.
The careful change in the language of all the provisions of the bankrupt act of 1898 from those of the former bankrupt acts upon the subject must have been intended by Congress to prevent a debtor from giving a creditor an irrevocable warrant of attorneys which would enable him, at any time dur-: ing the "insolvency of the debtor, and within four months before a petition in bankruptcy, to obtain a judgment and levy the execution on all the property of the bankrupt, to the exclusion of his other creditors.
The answer to the second and third questions certified must be that the judgment so entered and the levy of the execution thereon were a preference “suffered or permitted” by Nelson, within the meaning of clause 3 of § 3 of the bankrupt act; and that the failure of Nelson to vacate and discharge, at least five days before the sale on execution, the preference so obtained, was an act of bankruptcy; and it becomes unnecessary to answer the first question.
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, payable in five years, with interest at the rate of 4 cent per annum until paid. To this note was attached an irrevocable power of attorney, duly executed by said Nelson under his hand and seal in the usual form, authoriz. ing any attorney of any court of record in his name to confess judgment thereon after maturity of the note. This note was given for so much money at the time loaned to Nelson. 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 public auction, and applied the proceeds thereof, to wit, the sum of $4,400, upon and ...]" payment of the judgment so rend's erect. "It is admitted that such a judgment note: 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 knowl
edge 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 or vacated by Nelson, unless his filing his voluntary petition in bankruptcy prior to the sale, and obtaining an adjudication of bankruptcy thereunder, would have had that effect, or by payment of the judgment. On December 10, 1898, creditors of said Nelson filed a petition in involuntary bankruptcy 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 in: solvent 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 court ruled that Nelson had not, by reason of the premises, committed an act of bankruptcy, and dismissed the petition. An appeal was taken to the United States circuit court of appeals for the seventh circuit, and that court has certified certain questions for the consideration of this court. 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 en: tered the next day; execution was issued April 20, and levy was made and sale of roperty, real and personal. On May 27, *:::: 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 secur
ity 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 given in contemplation of bankruptcy involves the question, What is meant by those 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 .# 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. . t is es somewhat remarkable that this question; should be presented”for the first time for the decision of this court after the law has been so long repealed, and nearly all proceedings under it terminated. Perhaps the explanation may be found in the fact that when securities have been given within two months 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. “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 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 contemlate insolvency and the : i.
up of his usiness, and yet not contemplate bank
ruptcy. He may confidently believe that his F. character, and the state of his afairs, 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. to rupt, though insolvent, may have come to a § determination that he will not petition. The • contemplation of one of these states"not being 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 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 pe. tition, 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, conuently, if he must have notice of something 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, 3. 5 Taunt. 545; Hartshorn v. Slodden, 2 Bos. R & 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
in this case must he have had this in contemplation? He gave the power of attorney on the 7th of April; the judgment was confessed and entered upon the next day; the execution was taken out and levied and the lien created thereby on the 22d of May; and five days afterwards, being less than two months after the execution of the power, the debtor presented the petition under which he was decreed a bankrupt. The only act done by the debtor was the execution and delivery of the power of attorney. 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. “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 wo prejudice of other fair creditors, but shall; be paid ratably" with such creditors.” If ther 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
solvent debtor is necessary to invalidate a judgment and levy on his property when the debt is due and he has no defense; and that in such case there is no legal obligation on the debtor to file a petition in bankruptcy to prevent the judgment and levy, and a failure to do so is not sufficient evidence of an intent to give a preference to the judgment creditor, or to defeat the operation of the bankrupt law. In his opinion, discuss* facts of the case, Mr. Justice Miller Salol: “There is nothing morally wrong in their course [of the defendants] in this matter. They were sued for a just debt. They had mo 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 well as this one, and any of them could have instituted compulsory bankrupt proceedings: The debtor neither hindered nor facilitated any one of them. How is it possible from this to infer, logically, an actual purpose to prefer one creditor to another, or to hinder or delay the operation of the bankrupt act? “It is said, however, that such an intent is a legal inference from such inaction by the debtor, necessary to the successful operation of the bankrupt law; that the grand feature of that law is to secure equality of distribution among creditors in all cases of insolvency, and that, to secure this, it is the legal duty of the insolvent, when sued by one creditor in an ordinary proceeding likely to end in judgment and seizure of property, 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 o: 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
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 obligation on him to do so. Such an obligation would take from the right the character of a privilege, and confer on it that of alburdensome 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 another 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. “We do not construe the act as intended to cover all cases of insolvency to the exclusion of other judicial proceedings. It is very liberal in the classes of insolvents which it does include, and needs no extension in this direction by implication. But it still leaves, in a great majority of cases, parties who are really insolvent to the chances that their energy, care, and prudence in business may enable them finally to recover without disastrous failure or positive bankruptcy. All experience shows both the wisdom and justice of this policy. Many find themselves with ample means, good credit, large business, technically insolvent, that is, unable to meet their current obligations as fast as they mature. But by forbearance of creditors, by meeting only such debts as are 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. "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 proposition is true, where a person does a ositive act, the consequences of which he o beforehand, he must be held to intend those consequences. But it cannot so 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 obligation 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