In re Ft. Wayne Electric Corp.

• Decision Date: 25 January 1900
• Docket Number: 640.
• Parties: In re FT. WAYNE ELECTRIC CORP. v. WORDEN. COLUMBUS ELECTRIC CO.
• Court: U.S. Court of Appeals — Seventh Circuit

99 F. 400

In re FT. WAYNE ELECTRIC CORP.

COLUMBUS ELECTRIC CO. v. WORDEN.

No. 640.

United States Court of Appeals, Seventh Circuit.

January 25, 1900

R. S Robertson and William S. O'Rourke, for appellant.

William J. Vesey, John Morris, Jr., O. N. Heaton, and William P Breen, for appellee.

Before WOODS and JENKINS, Circuit Judges, and BUNN, District Judge.

JENKINS Circuit Judge, after the foregoing statement of the case, .

The question presented in this: Can a creditor, who has within four months of his debtor's bankruptcy innocently received a payment upon his debt, be permitted to prove his debt in the bankruptcy proceeding, and to receive from the estate of the bankrupt a dividend thereon, without surrendering the preference received? The question is one purely of statutory law, and depends for its solution upon the construction to be given to certain sections of the bankruptcy act. 30 Stat. 541.

Section 60a defines a 'preference' as follows:

'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 60b provides that the trustee may recover from the recipient any preference received within four months of the bankruptcy if the latter had reason to believe that a preference was intended. Section 3 defines acts of bankruptcy, one of which is: '(2) A transfer, while insolvent, to a creditor of any portion of his property, with intent to prefer such creditor. ' Subdivision b of that section provides that an involuntary petition in bankruptcy may be maintained for such act of bankruptcy committed within four months before the filing of the petition. Subdivision 25 of section 1 treating of definitions, provides that the word 'transfer,' as used in the act, shall 'include the sale and every other and different mode of disposing of or parting with property, or the possession of property, absolutely or conditionally, as a payment, pledge, mortgage, gift, or security. ' Section 57g provides as follows: 'The claims of creditors who have received preferences shall not be allowed unless such creditors shall surrender their preferences. ' It is apparent from these provisions of the law that not all preferences by an insolvent debtor may be avoided. The congress has seen proper to provide that the trustee in bankruptcy may recover preferences in the event only that the creditor had reasonable cause to believe that a preference was intended. It was not designed to interrupt the usual course of business, or to compel a creditor to pay back that which he had innocently received. This, however, does not conclude the case. When a creditor, who has in fact received a preference, comes into the court of bankruptcy seeking to share with other creditors in the estate of the bankrupt, he must come, if at all, upon the terms and the conditions that the law imposes. It is the fundamental principle of the bankrupt law that 'equality is equity.' The act seeks to marshal the assets of the bankrupt, recovering all property disposed of by the bankrupt in fraud of the act, and to distribute the fund equally among all the creditors in proportion to the amount of their respective claims. This principle we conceive to be distinctly recognized by section 57g. That section takes notice of the fact that a creditor who has been innocently preferred cannot be compelled to return that which he has received, but it says to him: While the law will not interfere with you with respect to that which you have received, and because you received it innocently, yet, if you come to the court asking that you may share with the other creditors in the remaining estate of the bankrupt, you must surrender the preference which you have received, however innocently; for equality is equity, and he who seeks equity must do equity. The act of...