1. When a person, borrowing money of another, pledges with that
other a large number of bills receivable as collateral security for
the loan (many of them overdue), the pledgee may properly hand them
back to the debtor pledging them for the purpose of being collected
or to be replaced by others. All money so collected is money
collected by the debtor in a fiduciary capacity for the pledgee.
And if a portion of the collaterals are subsequently replaced by
others, the debtor's estate being left unimpaired, and the
transaction be conducted without any purpose to delay or defraud
the pledgeor's creditors, or to give a preference to anyone, the
fact that proceedings in bankruptcy were instituted in a month
afterwards and the pledgeor was declared a bankrupt will not avoid
the transaction.
2. The giving, by a debtor, for a consideration of equal value
passing at the time, of a warrant of attorney to confess judgment
or of that which, under the code of New York, is the equivalent of
such warrant, and there called a "confession of judgment," is not
an act of bankruptcy, though such warrant or "confession" be not
entered of record, but on the contrary be kept as such things often
or ordinarily are in the creditor's own custody, and with their
existence unknown to others. The creditor may enter judgment of
record on them when he pleases (even upon insolvency apparent) and
issue execution and sell. Such his action is all valid and not in
fraud of the Bankrupt Law unless he be assisted by the debtor.
3. A creditor, having by execution obtained a valid lien on his
debtor's stock of goods of an amount in value greater than the
amount of the execution, may, up to the proceedings in bankruptcy,
without violating any provision of the Bankrupt Act, receive from
the debtor bills receivable and accounts due him, and a small sum
of cash, to the amount of the execution, the execution being
thereupon released and the judgment declared satisfied.
Page 88 U. S. 361
Clark, assignee in bankruptcy of Dibblee & Co., filed a bill
in the district court of the district just named against Iselin
& Co. to recover certain assets which the bill charged were
made over to them in fraud of the Bankrupt Law, an act whose
thirty-fifth section is in these words:
"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 any part of his property to be attached, sequestered,
or seized on execution, or makes any payment, pledge, assignment,
transfer, or conveyance of any part of his property, either
directly or indirectly, absolutely or conditionally, the person
receiving such payment, pledge or assignment, transfer or
conveyance, or to be benefited thereby, or by such attachment,
having reasonable cause to believe such person is insolvent, and
that such attachment, payment, pledge, assignment, or conveyance is
made in fraud of the provisions of this act, the same shall be
void, and the assignee many recover the property or the value of it
from the person so receiving or so to be benefited."
Upon the hearing a decree was made granting the relief asked
for, in part, and in part refusing it, and on appeal to the circuit
court, this decree of the district court was affirmed. Both parties
now appealed to this Court.
The firm of Dibblee & Co., jobbers, was formed in January,
1866, continued in business till May, 1869, and on the petition of
creditors, filed May 3, 1869, was adjudged bankrupt June 2,
1869.
The defendants, Iselin & Co., were bankers doing business in
the City of New York, and as such had various dealings with the
firm of Dibblee & Co., who from time to time required
commercial facilities, advancing to them money on the pledge of
bills receivable, which Dibblee & Co. had received in the
course of their business.
On the 6th of August, 1868, they borrowed from the
defendants
Page 88 U. S. 362
$61,000, for which they gave their four notes, payable one in
September, one in October, one in November, and the other in
December of that year, and at the same time they transferred to the
defendants, as collateral security for the loan, one hundred and
forty-seven bills receivable by them, amounting in the aggregate to
$72,170.42. Many of these bills were past due when they were
pledged. On the day next following the loan, the notes held as
collateral were returned to Dibblee & Co. for convenience of
collection, to be collected for account of the defendants or to be
replaced by others.
Of the four notes discounted by Iselin & Co., on the 6th of
August, 1868, the one which fell due in September was paid at
maturity, and the collaterals pledged for it were surrendered. The
other notes were not paid when they fell due, but were renewed from
time to time and extended, and the collaterals held by them were in
part replaced by others.
Thus, on the 4th day of December, 1868, the day when the
bankrupts' last note matured, the amount of the collaterals pledged
to the defendants was $63,240.61, and they were all, or nearly all,
good. It did not appear that any of them were uncollectible. For
some of these, others were substituted up to January 15, 1869, and
on the 5th of April, 1869, the amount of collaterals pledged for
the payment of the three notes given by the bankrupts was either
$63,318.89 or $65,013.15. On that day, they were all withdrawn, and
others, amounting to $62,027.34, were contemporaneously pledged in
their stead.
This pledge was sustained by the decrees below, and the assignee
appealed.
On the 8th of April, 1869, Dibblee & Co. paid to Iselin
& Co. $7,944.88, being the principal and interest of certain
loans made without security prior to the 30th of November, 1868.
The evidence showed that Dibblee & Co. were paying their debts
generally as they matured. This payment also was sustained by the
decree, and the assignee appealed.
There were some other transactions which the assignee called in
question, which were sustained and from which
Page 88 U. S. 363
the assignee appealed, but which need not be more particularly
mentioned.
A transaction, however, which both courts set aside and over
which there was much more doubt and argument everywhere than about
the others which it sustained, was of this sort.
On the 25th of February, 1869, Dibblee & Co. gave a judgment
note, in the form authorized by the New York Code, to secure
$54,100 lent by the defendants to them. This sort of note had what
is called "a confession of judgment" on it. The maker declares that
he "confesses judgment in favor of A. B." for such a sum, and
"authorizes judgment to be entered therefor" against him. It is the
equivalent of the old "warrant of attorney." A portion of the sum
of $54,000, mentioned in this note, had been advanced on the 21st
of February, and a judgment bill then given; another portion on the
23d of February, for which a similar security was then given, and
the remainder was advanced February 24. On the 25th of that month,
the previous confessions of judgment were given up and destroyed,
and one confession for the entire loan, $54,100, was taken as above
mentioned. The advances for which this confession was taken were
made in negotiable state and railroad bonds of a larger nominal
value, but they were taken by Dibblee & Co. at their cash value
at the time. They were made to enable the bankrupts to borrow
money, and upon depositing the securities lent as collateral, they
obtained $46,000 from three banks with which they did business.
The confession of judgment was held by the defendants without
entry of record until April 30, 1869, when judgment was entered
upon it in the supreme court, as the bill averred at the request of
the defendants, and an execution was issued and levied
upon the
debtor's stock of goods considerably greater in value than the
amount of the debt. On the next day (May 1), at the request of
the debtors, they paid to the banks with which the bonds lent had
been pledged the sums for which they were held, and took up the
collaterals and notes. Thus, a payment was effected on the judgment
of
Page 88 U. S. 364
the difference between the amount of the notes and the
collaterals. Then Dibblee & Co. paid $1,900 in cash and
transferred bills receivable and accounts owned by them, amounting
to $47,839.52, in satisfaction of the balance of the judgment, and
the levy was released.
The circuit court decided that the mere giving of the judgment
note was legitimate, but held the subsequent transaction to be
fraudulent as in conflict with the Bankrupt Act, and decreed that
the assignee of the bankrupts should recover from the defendants
the amount received by them from the securities transferred on the
1st of May, together with the $1,900 paid to them in cash, and the
value of the securities redeemed by them from the banks, above the
sums which they paid for the redemption. From this part of the
decree Iselin & Co. appealed, asserting that the payment, and
the transfer of securities made to them by Dibblee & Co. on the
1st of May was not a preference in fraud of the Bankrupt Act, or
any preference at all.
We return now to the transactions previous to the one last
mentioned (from which the defendants appealed), and state the
testimony bearing upon them.
The complainant alleged that the notes discounted by the
defendants for the bankrupts in August, 1868, were mere renewals,
and renewals of notes previously unsecured. However, the testimony
established that Iselin & Co. were fully covered with
collaterals for these discounts, from the time that they
originated, and that the moneys collected by Dibblee & Co., on
the collaterals temporarily entrusted to them, were, until
replaced, regarded as the specific property of Iselin & Co.,
and to be paid over by Dibblee & Co. to Iselin & Co.
The testimony further showed that Dibblee & Co. were making
preparations for extending their business during the then
approaching "season."
Two members of the firm were examined as witnesses.
One of them thus testified:
"Up to April 30, I never heard the solvency of our house
questioned, nor had I any reason to suppose that it would
suspend.
Page 88 U. S. 365
A week or ten days before that Mr. Dibblee had said to Mr.
Bingley and myself, that we had a good prospect for the coming
season. Up to the 30th day of April, 1869, I had no reason to
suppose that the house was not perfectly solvent."
Another thus:
"Though I knew little of the financial condition of Dibblee
& Co., on the 30th April, 1869, I was led to believe by Mr.
Dibblee's acts and from the circumstance that a few days before he
directed me to reengage certain salesmen for the approaching
season, that we were on that day solvent. I did not, of my own
knowledge, know of such solvency. Up to that time, however, I never
heard it questioned."
Both of these witnesses were partners in the house of Dibblee
& Co., and attended to the purchases and sales made by the
house, and were therefore in intercourse with the parties who sold
the house goods. It seemed, therefore, that they would have been
the first to hear any question as to the credit of the house being
doubted.
A witness of the complainant, who, as an expert, had examined
their books lately, testified that Dibblee & Co. were insolvent
on the 1st day of August, 1868, to the extent of at least $75,000,
and to a like amount for months previous to that date. However,
subsequently to that date, the defendants purchased in the market
Dibblee & Co.'s notes to the amount of over $80,000, more than
$47,000 being unsecured.
On the 13th of April, 1869, a firm in which one of the Iselins
was a special partner sold goods to Dibblee & Co. upon credit
for over $24,000, and the amount due them from Dibblee & Co.,
at the time of the adjudication in bankruptcy, and proved before
the register, was $8,351, one of the largest debts proved.
As already said, the court below sustained all the transactions
except the last. That one it held fraudulent.
Page 88 U. S. 368
MR. JUSTICE STRONG delivered the opinion of the Court.
It is argued by the counsel for the assignee that the return to
Dibblee & Co. for collection of the notes transferred to secure
the loan of August 6, 1868, for $61,000, destroyed the title of
Iselin & Co. to them. The notes, however, were returned to
Dibblee & Co. for convenience of collection, to be collected
for account of the defendants or to be replaced by others.
Obviously this deposit in no degree affected the title of the
defendants to the notes. It merely facilitated collections. In
White v. Platt, [
Footnote
1] it was said by the court that
"Where promissory notes are pledged by a debtor to secure a
debt, the pledgee acquires a special property in them. That
property is not lost by their being redelivered to the pledgeor to
enable him to collect them, the principal debt being still unpaid.
Money which he may collect upon them is the specific property of
the creditor. It is deemed collected by the debtor in a fiduciary
capacity."
It is further argued in behalf of the assignee that the pledge,
on the 5th of April, 1869, of the collaterals, amounting to
$62,027.34, was void because made at that date. The transaction,
however, was a mere exchange of securities. The new collaterals
were not pledged to secure an unsecured debt or to give any
preference to the defendants. They
Page 88 U. S. 369
were no addition to what the defendants had before, to what they
had held from August 6, 1868, when the loan to Dibblee & Co.
was made. The exchange therefore withdrew nothing from the
creditors generally which had not long before been withdrawn. The
defendants owned the securities they then surrendered, and by
surrendering them, they enlarged the debtors' estate to the extent
of the securities received in exchange. In
Cook v. Tullis,
[
Footnote 2] we held that there
is nothing in the Bankrupt Law which prevents an insolvent from
dealing with his property -- selling or exchanging it for other
property -- at any time before proceedings in bankruptcy are taken
by or against him, provided such dealing be conducted without any
purpose to delay or defraud his creditors, or to give a preference
to anyone, and does not impair the value of his estate. The same
doctrine was asserted in its fullest extent in
Tiffany v.
Boatman's Savings Institution. [
Footnote 3]
It is argued on behalf of the assignee that the notes discounted
by the defendants for the bankrupts in August, 1868, were a mere
renewal of an antecedent debt, and not a loan or a discount at that
time. If this be conceded, it will not help the assignee. The
transaction, whatever it was, was nine months before the petition
for bankruptcy was filed, and nothing in the thirty-fifth section
of the Bankrupt Act would justify its disturbance. But it is said
the transfer of collaterals to secure the notes was a fraud and a
sham, and this is asserted because the collaterals were placed in
the hands of Dibblee & Co. for collection on account of the
defendants. We do not think so. It has been said already, and
decided, as we have noticed, that a pledgee does not lose his
property is collaterals pledged to him by putting them into the
hands of the pledgeor for collection. In this case, there was
peculiar reason for allowing Dibblee & Co. to collect them for
the defendants. Many of them, nearly all, were past due. They could
not, therefore, be collected through banks, and the convenience of
all parties was subserved
Page 88 U. S. 370
by placing them where the debtors might be expected to come. If,
then, the property in these collaterals was by the pledge vested in
the defendants and remained in them until they or their proceeds
were surrendered for other collaterals, as we think it was, the
subsequent exchanges, though made within four months next prior to
the petition in bankruptcy, were not a fraud upon the Bankrupt Law.
The exchanges amounted to no preference. They took nothing from the
debtor's estate. The general creditors lost nothing thereby. Such
was the opinion of both the district and the circuit court, and
with that opinion we concur.
Little need be said respecting the other particulars in regard
to which the assignee complains of the decree in the circuit court.
The payment of $7,944.88 on the 8th of April, 1869, and the
payments in discharge of the call loans were made in the regular
course of business. It is not denied that they were in discharge of
debts due to the defendants, and it is not denied that at the times
when they were made Dibblee & Co. were paying their other
creditors as their claims matured. There is nothing in those
transactions that shows any intended preference. And in reference
to all the transactions between the defendants and the bankrupts
prior to April 30, 1869, we may remark that we find no evidence in
the record that the latter contemplated bankruptcy. It is highly
probable that they were in fact insolvent, but their whole conduct,
as well as the testimony of two of them, shows that they did not
anticipate any interruption of their business. In fact they were
planning its enlargement. And there is no sufficient evidence that
the defendants knew or had reason to believe that the bankrupts
were insolvent. Up to January, 1869, they were buying the unsecured
notes of the bankrupts in the market until they had obtained them
to an amount exceeding $47,000. In February, 1869, they lent the
bankrupts bonds and other securities amounting to $54,100, taking,
it is true, a confession of judgment, which they did not enter
until April
Page 88 U. S. 371
30, 1869. About the middle of April, a firm in which one of the
defendants was a partner sold the bankrupts goods on credit for
more than $24,000, and late in March and at divers times in April
down to the 30th, the defendants themselves lent the bankrupts sums
amounting to $20,000, without any security, except in part a
confession of judgment never entered. In view of these facts, it
cannot be said the defendants knew the bankrupts were insolvent.
Nor can we discover in the whole case anything that should have led
them to suspect insolvency. Nobody else suspected it, why should
they? If, then, the bankrupts intended no preference in fraud of
the Bankrupt Act in any of their dealings with the defendants prior
to April 30, 1869, and if the defendants had no knowledge of the
insolvency of the bankrupts prior to that day or any reasonable
cause to believe they were insolvent, what ground is there for
impeaching those dealings? We think there is none, and hence that
the assignee in bankruptcy has no just cause to complain that the
decree of the circuit court was not at least as favorable to him as
he had any right to claim.
But the defendants below have also appealed. The circuit court
decreed partially against them. On the 25th of February, 1869,
Dibblee & Co. gave a judgment note or bill, in the form
authorized by the New York Code, to secure $54,100 loaned by the
defendants to them. A portion of this sum had been advanced on the
21st of February, for which a judgment bill was then given; another
portion on the 23d of February, for which a similar security was
then given, and the remainder was advanced February 24. On the 25th
of that month, the previous confessions of judgment were given up
and destroyed, and one confession for the entire loan, $54,100, was
taken by the defendants. The advances for which this confession was
taken were made in negotiable state and railroad bonds of a larger
nominal value, but they were taken by the bankrupts at their actual
cash value at the time. They were made to enable the bankrupts to
borrow money, and upon depositing the securities lent as collateral
they obtained $46,000 from three banks
Page 88 U. S. 372
with which they did business. That this transaction thus far was
perfectly legitimate can hardly be doubted, and so it was regarded
by the court below. The bankrupts acquired property by it to the
full value of the security they gave. They parted with nothing that
they then had. If the defendants had known that they were insolvent
at the time, it would make no difference. The confession of
judgment was not given for a preexisting debt. And if it had been,
the defendants had, as we have stated, no reasonable cause to
believe that the debtors were insolvent. We may assume, therefore,
that the confession of judgment is unimpeachable. It was held by
the defendants without entry of record until April 30, 1869, when
judgment was entered upon it in the supreme court, as the bill
avers, at the request of the defendants, and an execution was
issued and levied upon the debtors' stock of goods, greater in
value than the amount of the debt. Thus, the defendants obtained a
lien upon the goods, a full security for the debt due them. On the
next day (May 1st), at the request of the debtors, they paid to the
banks with which the bonds loaned had been pledged the sums for
which they were held, and took up the collaterals and notes. Thus a
payment was effected on the judgment of the difference between the
amount of the notes and the collaterals. Then Dibblee & Co.
paid $1,900 in cash, and transferred bills receivable and accounts
owed by them, amounting to $47,839.52, in full satisfaction of the
balance of the judgment, and the levy of the execution was
released.
This transaction the circuit court held to be fraudulent as in
conflict with the Bankrupt Act, and decreed that the assignee of
the bankrupts should recover from the defendants the amount
received by them from the securities transferred on the 1st of May,
together with the $1,900 paid to them in cash and the value of the
securities redeemed by them from the banks above the sums which
they paid for the redemption. It is from this part of the decree
that the defendants below have appealed, and they now contend the
payment, and the transfer of securities made to them by
Page 88 U. S. 373
Dibblee & Co. on the 1st of May, was not a preference in
fraud of the Bankrupt Act or any preference at all.
Whether it was or not obviously depends upon the answer which
must be given to the question "was it a transfer of property for a
sufficient present consideration, or was it a transfer to satisfy
or secure an antecedent debt or liability?" The confession of
judgment given on the 25th of February was, as we have seen, a
security to the defendants for a loan then made, not a security for
a preexisting debt. Giving and receiving that paper, therefore,
cannot be considered a preference of creditors. The defendants had
a clear right to take and to hold it, and the borrower had a clear
right to give it. Besides, as already remarked, it does not appear
from the evidence that at that time Dibblee & Co. were
insolvent. It must therefore be concluded, as it was by the court
below, that there was nothing in that transaction which was
fraudulent in fact or fraudulent as against the Bankrupt Law. The
confession was not itself a judgment, but it authorized the
defendants to cause a judgment to be entered without the knowledge
of the debtors, and even against their protest. Was, then, the
subsequent entry of the judgment, and the issuing of an execution
thereon, followed by a levy on the debtor's goods, obtaining an
unlawful preference? The court below thought it was, but such is
not our opinion. It must be conceded that on the 30th day of April,
when the defendants caused the judgment to be entered, the
execution to issue, and the levy to be made, they knew that Dibblee
& Co. were insolvent; but that knowledge is not of itself
sufficient to invalidate the judgment and execution. A creditor may
pursue his insolvent debtor to judgment and execution, with full
knowledge of the insolvency, notwithstanding the provisions of the
Bankrupt Act, provided the debtor does nothing to aid the pursuit.
If there be no collusion between the debtor and the creditor, the
ordinary remedies of the law are open to the latter. In
Wilson
v. The City Bank, [
Footnote
4] it was decided by this Court that when a debt is
Page 88 U. S. 374
due and the debtor is without just defense to the action,
"something more than passive nonresistance of an insolvent
debtor to regular judicial proceedings in which a judgment and levy
on his property are obtained is necessary to show a preference of a
creditor or a purpose to defeat or delay the operation of the
Bankrupt Act, and that though the judgment creditor in such a case
may know the insolvent condition of the debtor, his levy and
seizure are not void under the circumstances, nor any violation of
the Bankrupt Law."
It was also decided that a
"lien thus obtained by the creditor will not be displaced by
subsequent proceedings in bankruptcy against the debtor, though
obtained within four months from the filing of the petition."
It is true that in
Wilson v. City Bank, the judgment
under review and the execution thereon were obtained in an ordinary
suit at law, to which the debtor made no defense, but allowed the
judgment to be taken by default. In this case, the judgment was
entered by the creditor in virtue of what is called a confession
previously made, equivalent to a warrant of attorney to confess a
judgment. But it is impossible that can make any difference in its
validity. The confession having been lawful when it was given, the
subsequent use of it by the creditors according to its legal
effect, a use to which the debtors were not parties and of which
they had no knowledge, cannot be illegal. If it is, it must be
because it is made so by the thirty-fifth section of the Bankrupt
Act. [
Footnote 5] But a careful
examination of that section will show that the mere entry of a
judgment against an insolvent debtor by virtue of a warrant of
attorney, though entered just before the proceedings in bankruptcy
are commenced and when the creditor knows his debtor is insolvent
and though followed by an execution, is not such a preference as
the statute avoids. Something more is needed to make it an unlawful
procurement of a preference.
To bring the case of a judgment and execution or attachment
within the thirty-fifth section of the Bankrupt Act, several things
must concur:
Page 88 U. S. 375
1. The debtor must have procured the judgment and attachment of
his property.
2. He must have procured them within four months next prior to
the filing of the petition in bankruptcy by or against him.
3. He must have been insolvent, or contemplating insolvency, at
the time, and he must have procured the judgment and execution with
a view to give a preference to the judgment creditor.
4. The creditor must have had reasonable cause to believe that
the debtor was insolvent, and that the judgment and execution were
given in fraud of the provisions of the Bankrupt Act.
We say these things must concur. And they must concur not only
in fact, but in time also. The words of the thirty-fifth section
admit of no other construction. The debtor must be insolvent, or
contemplating insolvency when the alleged preference is given. And
he must then have in view giving a preference. He must procure the
attachment or the entry of the judgment, the execution, and the
levy, with a present intention to prefer the creditor. The unlawful
view to a preference must coexist with the procurement. It is not
enough that it precedes the entry of the judgment and the levy of
the execution, or that it follows. And the creditor, when he
obtains the judgment and execution, must have reasonable cause to
believe not only that the debtor is insolvent, but that the
attachment is made (made or caused by the debtor) in fraud of the
provisions of the act. In fine, there must be guilty collusion to
constitute the fraudulent preference condemned by the statute.
Now in a case where a creditor, holding a confession of judgment
perfectly lawful when it was given, causes the judgment to be
entered of record, how can it be said the debtor procures the entry
at the time it is made? It is true the judgment is entered in
virtue of his authority, an authority given when the confession was
signed. That may have been years before, or, if not, it may have
been when the debtor was perfectly solvent. But no consent is
given
Page 88 U. S. 376
when the entry is made, where the confession becomes an actual
judgment, and when the preference, if it be a preference, is
obtained. The debtor has nothing to do with the entry. As to that,
he is entirely passive. Ordinarily he knows nothing of it, and he
could not prevent it if he would. It is impossible, therefore, to
maintain that such a judgment is obtained by him when his
confession is placed on record. Such an assertion, if made, must
rest on a mere fiction. And so it has been decided by the Supreme
Court of Pennsylvania. [
Footnote
6] More than this, as we have seen, in order to make a judgment
and execution against an insolvent debtor a preference fraudulent
under the law, the debtor must have procured them with a view or
intent to give a preference, and that intent must have existed when
the judgment was entered. But how can a debtor be said to intend a
wrongful preference at the time a judgment is obtained against him
when he knows nothing of the judgment? That years before he may
have contemplated the possibility that thereafter a judgment might
be obtained against him; that long before he may have given a
warrant of attorney to confess a judgment, or by a written
confession, as in this case, have put it in the power of his
creditor to cause a judgment to be entered without his knowledge or
subsequent assent, is wholly impertinent to the inquiry whether he
had in view or intended an unlawful preference at a later time, at
the time when the creditor sees fit to cause the judgment to be
entered. For, we repeat, it is a fraudulent intent existing in the
mind of the debtor at this later time which the Act of Congress has
in view. The preference must be accompanied by a fraudulent intent,
and it is that intent that taints the transaction. Without it, the
judgment and execution are not void.
This construction of the Act of Congress, which appears to us to
be the only one of which it is susceptible, necessitates the
conclusion that the entry of the judgment against Dibblee & Co.
on the 30th of April, 1869, the issue of the execution
Page 88 U. S. 377
thereon, and the levy upon the debtors' stock, were not
fraudulent; that they were not a procurement by the debtor of a
seizure of his property with a view on his part to give a
preference to the defendants, within the meaning of the
thirty-fifth section.
It has been suggested in opposition to the view we have taken
that if a creditor may hold a confession of judgment by his debtor
or a warrant of attorney to confess a judgment without causing it
to be entered of record until the insolvency of the debtor appears,
the debtor may thereby be able to maintain a false credit. If this
be admitted, it is not perceived that it has any legitimate bearing
upon the question before us. The Bankrupt Act was not aimed against
false credits. It did not prohibit holding judgment bonds and notes
without entering judgments thereon until the debtors became
embarrassed. Such securities are held in some of the states
amounting to millions upon millions. The Bankrupt Act had a very
different purpose. It was to secure equality of distribution of
that which insolvents have when proceedings in bankruptcy are
commenced, and of that which they have collusively with some of
their creditors attempted to withdraw from ratable distribution,
with intent to prefer some creditors over others. There is much in
the language of the court in
Wilson v. City Bank [
Footnote 7] that confirms the opinion
we express.
If, then, the entry of the judgment, the execution, and the
levy, on the 30th of April, 1869, were not a forbidden preference,
as we have endeavored to show they were not, the transaction on the
next day, May 1, was unimpeachable. It was only an exchange of
values. The debtors transferred to the execution creditors bills
receivable and other securities, together with $1,900 in cash, the
whole value being equal to the amount of the judgment, and received
back the goods upon which the execution had been levied. Those
goods were of greater value than the securities transferred and the
money paid. It is not claimed that the defendants
Page 88 U. S. 378
obtained more than they gave in return. The exchange, instead of
impairing the debtors' estate, actually benefited it. It saved the
stock levied upon from the expense and sacrifice of a forced sale.
It was therefore such an exchange as the debtors might lawfully
make and as the creditors might lawfully accept. This is determined
by
Cook v. Tullis, [
Footnote 8] and
Tiffany v. Boatman's Savings
Institution. [
Footnote
9]
Decree wholly reversed and the cause remanded, with
instructions to proceed in accordance with this opinion.
JUSTICES HUNT, CLIFFORD, and MILLER dissented.
See next
case,
infra, p.
88 U. S.
381.
[
Footnote 1]
5 Denio 269.
[
Footnote 2]
85 U. S. 18 Wall.
332.
[
Footnote 3]
85 U. S. 18 Wall.
375.
[
Footnote 4]
84 U. S. 17 Wall.
473.
[
Footnote 5]
See the section quoted
supra, p.
88 U. S.
361.
[
Footnote 6]
Sleek v. Turner's Assignee, Legal Intelligencer,
September 25, 1874.
[
Footnote 7]
See the case,
84 U. S. 17 Wall.
473, and especially the remarks upon pages
84 U. S.
486-487.
[
Footnote 8]
85 U. S. 18 Wall.
332.
[
Footnote 9]
85 U. S. 18 Wall.
375.
