U.S. Supreme Court
Keppel v. Tiffin Savings Bank, 197 U.S. 356 (1905)
Keppel v. Tiffin Savings Bank
Argued January 6, 1905
Decided April 3, 1905
197 U.S. 356
The word "surrender," as generally defined, may denote either compelled or voluntary action. In § 57g of the Bankruptcy Act of 1898, providing that the claims of creditors who have received preferences shall not be allowed unless such creditor shall surrender their preferences, it is unqualified and generic, and hence embraces both meanings.
A penalty is not to be readily implied and a person subjected thereto unless the words of the statute plainly impose it, and courts will not construe the provision so as to cause the word "surrender," as used in § 57g of the Bankruptcy Act, to embrace only voluntary action, and thus read into the statute a qualification conflicting with equality of creditors and also creating a penalty not expressly or by implication found in the statute. Such a construction would create a penalty by judicial action alone, and would also necessitate judicial legislation in order to define the character and degree of compulsion essential to prevent the surrender in fact from being a surrender within the meaning of the section.
The creditor of a bankrupt who has received a merely voidable preference and who has in good faith retained such preference until deprived thereof by the judgment of a court upon a suit of the trustee can thereafter prove the debt so voidably preferred.
Charles A. Goetz became a voluntary bankrupt on October 12, 1900. George B. Keppel, the trustee, sued the Tiffin Savings Bank in an Ohio court to cancel two real estate mortgages executed by Goetz, one to secure a note for $4,000 and the other a note for $2,000. The mortgage to secure the $4,000 note was made more than four months before the adjudication in bankruptcy. The mortgage securing the $2,000 note was executed a few days before the bankruptcy, the mortgagor being at the time insolvent and intending to prefer the bank. The bank defended the suit, averring its good faith and asserting the validity of both the securities. In a cross-petition, the enforcement of both mortgages was prayed. The court held chanroblesvirtualawlibrary
the mortgage securing the $4,000 note to be valid, and the mortgage securing the $2,000 note to be void. The trustee appealed to a circuit court, where a trial de novo was had. At such trial, the attorney for the bank stated to the court that the bank waived any claim to a preference as to the $2,000 note, but that he could not assent to a judgment to that effect. A judgment was entered sustaining the security for the $4,000 note and avoiding that for the $2,000 note.
The bank subsequently sought to prove that it was a creditor of the estate upon the note for $2,000, and upon two other unsecured notes aggregating $835. The referee refused to allow the proof upon the ground that, as the bank had compelled the trustee to sue to cancel the security, and a judgment nullifying it had been obtained, the bank had lost the right to prove any claim against the estate. The district judge, upon review, reversed this ruling. The circuit court of appeals to which the issue was taken, after stating the case as above recited, certified questions for our determination. chanroblesvirtualawlibrary