In re Fixen

• Decision Date: 21 May 1900
• Docket Number: 582.
• Citation: 102 F. 295
• Parties: In re FIXEN et al. v. FIELD et al. FORGY
• Court: U.S. Court of Appeals — Ninth Circuit

102 F. 295

In re FIXEN et al.

FORGY v. FIELD et al.

No. 582.

United States Court of Appeals, Ninth Circuit.

May 21, 1900

This cause comes before this court upon the alleged error of the district court for the Southern district of California sitting as a court of bankruptcy, in allowing the claim of Marshall Field & Co. against the estate of Fixen & Co. bankrupts. It appears that on May 29, 1899, Fixen & Co. were indebted to Marshall Field & Co., appellees herein, in the sum of $745.61 for merchandise sold and delivered to said Fixen & Co. by the appellees, and that on that day the appellees received from Fixen & Co., in the ordinary course of business, the sum of $428.45 on account of said indebtedness, leaving a balance of $317.16 still due the appellees. Shortly thereafter the appellees again sold merchandise to the said Fixen & Co. to the amount of $232.50, making a total indebtedness of $549.66. It has been shown that Fixen & Co. were insolvent on May 29, 1899 when they made the payment on account to the appellees, and that said payment was made within four months of the filing of the petition in bankruptcy. The court below allowed the claim of appellees, as creditors of the bankrupts, for $549.66. The trustee of the bankrupt estate, appellant herein, objected to this allowance upon the ground that the bankrupts had, while insolvent, given a preference to the claimants, Marshall Field & Co., by said payment on account; that said claimants had not surrendered any portion of said payment to the bankrupt estate or to the trustee thereof, and the enforcement of said transfer and payment would give to said claimants a greater percentage of their debt than to other creditors of the same class. Upon this contention the trustee brings the matter to this court, and asks for a reversal of the judgment of the court below.

E. T. Dunning and I. H. Johnston, for appellant.

Charles Udell, L. L. Shelton, and H. G. W. Dinkelspiel, for appellees.

Henry Ach, amicus curiae.

Before GILBERT, ROSS, and MORROW, Circuit Judges.

MORROW Circuit Judge (after stating the facts as above).

The question to be determined in this case is whether a payment made on account by an insolvent debtor, in the ordinary course of business, within four months prior to his adjudication in bankruptcy, where is does not appear that the creditor receiving the payment had reasonable cause to believe that it was intended as a preference, constitutes a preference, under the bankruptcy act, that will prevent the allowance of the creditor's claims for the balance on the account. Section 60 of that act provides (30 Stat. 562):

'(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.'

It has been questioned whether a payment of money in the ordinary course of business can be considered a transfer of property. In section 1 of the same act, however, the word 'transfer' is defined as including '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. ' As the word 'property' is legally understood to include every class of acquisitions which a man can own or have an interest in, it must certainly cover money; and the payment of money, therefore, by an insolvent to an unsecured creditor within the statutory period must be considered a transfer of his property, constituting a preference, under section 60a of the act of bankruptcy, the enforcement of which transfer would allow one creditor to obtain a greater percentage of his debt than any other creditor of the same class. How is such preference to be dealt with? Subdivision 'b' of section 60 of the same act provides: '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 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.'

It is not contended that the appellees herein believed or had any knowledge that the payment from the bankrupt was intended to give to them a preference, or that it would, in effect, be a preferential transfer. The trustee could not, therefore, recover upon the ground stated in subdivision 'b.' But the bankruptcy act provides, in section 57g, that 'the claims of creditors who have received preferences shall not be allowed unless such creditors shall surrender their preferences. ' The appellees have not surrendered their preference, yet seek to have their claim allowed for the balance due them from the bankrupt, upon the contention that they received the payment from the bankrupt in good faith, without knowledge of its insolvency, continued to sell goods to the bankrupt firm in the usual course of business, and that the acceptance of said payment on account should not be held as a preference which would prevent the allowance of their claim. In the former bankruptcy act, of 1867, the belief of the creditor as to the intention of the debtor in giving a preference was considered, when the surrender of such preference was required. In section 23 it was provided:

'Any person who * * * 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 * * * until he shall have first surrendered to the assignee all property, money, benefit, or advantage received by him under such preference.'

But in the act of 1898 congress omitted from section 57g any reference to cause for belief on the part of the creditor, and stated in concise and unmistakable terms that 'the claims of creditors who have received preferences shall not be allowed unless such creditors shall surrender their preferences. ' It is evident that the purpose of intent of the parties in giving or receiving a preference was not intended to be considered in this section, but the effect of the preference in the benefit or advantage which it would give to one creditor over another. No penalty is imposed on the creditor by the section, but merely an option on the part of a creditor who has received a preference to keep what he has received, and take no dividends from the bankrupt's estate, or to surrender his preference and share equally with the other creditors in the distribution of the estate. The fundamental principle of the act is a real and effectual equality in the distribution of the bankrupt estate. Lowell, Bankr. p. 43. In the disposition of property among creditors, equality is equity. Bank v. Sherman, 101 U.S. 403, 406, 25 L.Ed. 866. To accomplish the purpose of the statute, the court exercises its equitable jurisdiction in dealing with preferences. The right to prefer creditors is an infirmity still remaining in the body of the common law. It is contrary to the letter and spirit of the maxim that equality is equity. Paper Co. v. Robbins, 151 Ill. 632, 38 N.E. 153; 11 Am.& Eng.Enc.Law (2d Ed.) 186. In this view of the scope and purpose of the act, it certainly cannot be considered inequitable to require one who has received an undue portion of the estate, no matter if innocently, to surrender that advantage before participating in further distributions of the estate with those who have not received such preference. Coll. Bankr. p. 286.

It is urged very earnestly on behalf of the appellees, and by counsel who have appeared as amici curiae, that this interpretation of the act will be disastrous to credit; that it will unsettle business, and render...