US SUPREME COURT DECISIONS

Frank Brothers were adjudged bankrupts in February, 1899. For a long time prior to that, Pirie & Co. had dealt with them, selling them merchandise. Within four months prior to the adjudication of bankruptcy, Pirie & Co. received from them $1,338.79, leaving a balance still due and. unpaid of $3,093.98. When this payment was made, Frank Brothers were hopelessly insolvent to the knowledge of Frank Brothers, but Pirie & Co. and their agents had no knowledge of it, and had no reasonable cause to believe that the bankrupts, by such payment, intended to give a preference, nor did they intend to do so. Pirie & Co. proved their claim against the estate, and received a dividend thereon, which they still hold.

The provisions in the Bankrupt Act of July 1, 1898, c. 641, § 80, 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"

means that a transfer of property includes the giving or conveying anything of value, anything which has debt paying or debt securing power, and money is property.

If the person receiving such preference did not have cause to believe that. it was intended, he may keep the property transferred, but, if it be only a partial discharge of his debt, cannot prove the balance.

When the purpose of a prior law is continued, its words usually are, and an omission of the words imply an omission of the purpose.

The object of a Bankrupt Act is, so far as creditors are concerned, to secure equality of distribution, among all, of the property of the bankrupt.

Subdivision c of section 80 of the Bankrupt Act is applicable to the cases arising under subdivision b, and allows a set-off, which might not be otherwise allowed.

In proceedings in bankruptcy in the matter of Frank Brothers, bankrupts, in the District Court for the Northern District of Illinois, the appellants filed a claim for goods, wares, and merchandise sold and delivered to said bankrupt firm for the sum of $3,093.98. The claim was allowed, and subsequently a dividend of fifteen percent was paid thereon. chanrobles.com-red

Page 182 U. S. 439

On the 31st of August, 1899, the appellee, the Chicago Title & Trust Company, filed a petition for a reconsideration of the claim and its rejection on the ground that Carson, Pirie, Scott & Company had within four months prior to the filing of the petition in bankruptcy received from the bankrupts large sums of money as preferences, which preferences had not been surrendered. The recovery of the dividend paid was also prayed for.

To the petition, Carson, Pirie, Scott & Company made the following answer:

"They admit that they have collected in the usual and ordinary course of their business, from said bankrupts, Frank Brothers, within four (4) months prior to the filing of the petition in bankruptcy, the sum of one thousand three hundred and thirty-six and 79/100 dollars ($1,336.79)."

"Further answering, Carson, Pirie, Scott & Company say that they did not know, or have reason to believe, that the said Frank Brothers were insolvent at the time the payments were made, nor did they have reasonable cause to believe that such payments were made with any intent to give them a preference, nor did said Frank Brothers intend the payments so made to be preferences."

The matter came up before Frank L. Wren, referee, and he substantially found the facts, from the stipulation of the parties, as hereinafter stated in the findings of the circuit court of appeals, and that the payments constituted a preference. He adjudged, therefore, that the claim be reconsidered and rejected and the dividend paid thereon be given up. On review, the district court also found the facts as the referee found them, and on the 9th of May, 1900, made and entered an order, the conclusion of which was as follows:

"It is therefore ordered, adjudged, and decreed that said claim of said Carson, Pirie, Scott & Company, heretofore filed herein and allowed, should be reconsidered."

"That said claim of Carson, Pirie, Scott & Company should be rejected and expunged."

"That said Carson, Pirie, Scott & Company forthwith pay

Page 182 U. S. 440

to the trustee herein the amount of the dividend heretofore paid to them by the trustee herein, to-wit, the sum of $464.10."

Carson & Company excepted, and subsequently took an appeal to the circuit court of appeals, which court affirmed the order of the district court, upon its opinion in In re Fort Wayne Electric Corp., 99 F.4d 0. The case was then brought here.

The findings of fact and conclusions of law of the circuit court of appeals are as follows:

"First. That on February 11, 1899, August Frank, Joseph Frank, and Louis Frank, trading as Frank Brothers, were duly adjudged bankrupts."

"Second. That for a long time prior thereto, appellants carried on dealings with the said bankrupt firm, said dealings consisting of a sale by said appellants to said Frank Brothers of goods, wares, and merchandise amounting to the total sum of $4,403.77."

"Third. That said appellants, in the regular and ordinary course of business and within four months prior to the adjudication in bankruptcy herein, did collect and receive from said bankrupts as partial payment of said account for such goods, wares, and merchandise so sold and delivered to said Frank Brothers, the sum of $1,336.79, leaving a balance due, owing, and unpaid, amounting to $3,093.98."

"Fourth. That at the time this payment was made, said Frank Brothers were wholly and hopelessly insolvent to the knowledge of said Frank Brothers, and that, when said payments were made, and at the time of the adjudication in bankruptcy of the bankrupts herein, the assets of said bankrupts did not exceed the sum of $125,000, while their liabilities exceeded $500,000."

"Fifth. That at the time of the payment above set forth, neither said appellants nor any of their agents had knowledge of the insolvency of said Frank Brothers, or had reasonable cause to believe that said Frank Brothers were insolvent, and that, when said payment was made, said appellants did not have reasonable cause to believe that said bankrupts by said payment intended thereby to give a preference. Nor did said bankrupts by said payments intend thereby to give a preference. "

Page 182 U. S. 441

"Sixth. That at or about the time of the first meeting of the creditors herein, to-wit, on March 17, 1899, said appellants duly filed a claim herein against said bankrupts' estate for their balance of said claim for goods, wares, and merchandise sold by them to the bankrupts as aforesaid, said balance amounting to the sum of $3,093.98, and that at or about the time of the said first meeting of creditors herein, said claim was duly allowed at the sum last above set forth; that thereafter, and on the 28th day of April, 1899, a dividend of fifteen percent upon all claims which were allowed against said bankrupts' estate was duly declared by the referee herein, and that said dividend was paid to the various creditors who had proved their claims, including appellants'; that the amount of the dividend paid to appellants was $464.10, which money appellants still retain, no part thereof having been repaid or returned to the trustee herein or anybody acting on behalf of said trustee."

"Seventh. That at the time of the allowance of said claim and the declaration of said dividend and the payment thereof, the trustee was not aware of the fact that said appellants had received any preference on their claim and demand against said bankrupts."

"Eighth. The said appellants have refused to surrender to the trustee the amount of the payment made to them by said bankrupts above set forth, as a condition of the allowance of their said claim, and have by their counsel declared that it is the intention of said claimants to retain the full amount of said payment so made to them by said bankrupts, and not to surrender the same."

"Ninth. That the appellee, Chicago Title & Trust Company, trustee, which had been duly appointed trustee of the bankrupt estate of said Frank Brothers, filed its petition praying that the claim of appellants against the bankrupts' estate be reconsidered and rejected, and that said appellants be ordered and required to repay to the trustee the amount of the dividend on the said claims theretofore paid to appellants; the grounds of said petition being that said appellants had within four months prior to the adjudication in bankruptcy of said bankrupts received large sums of money as preferences, which

Page 182 U. S. 442

preferences said appellants had not surrendered, that said appellants appeared in said proceedings and answered said petition."

"That the referee, upon the evidence presented before him, decided that the said payment made by the bankrupts to said appellants constituted a preference, and that, by reason of said preferences, the appellants' claim should be reconsidered and rejected, and that appellants should repay to appellee the amount of the dividend on appellants' said claim theretofore paid by appellee to them, the sum of $464.10; that, upon appellants' application and upon the certification of the questions presented to the United States District Court for the Northern District of Illinois, the decree of the referee was confirmed, and an order in the district court was entered in accordance with the referee's said report, from which order an appeal was taken to this Court."

"Upon the foregoing facts, this Court makes the following conclusions of law:"

"First. That the payment made by appellants to the bankrupts at the time and in the manner above shown constitutes a preference, and that, by reason of the failure and refusal of said appellants to surrender said preferences they were not entitled to prove their claim against the bankrupts' estate."

"Second. That the district court had the power and authority to order, require, and compel appellants to repay to the trustee the amount of the dividend received by appellants."