McKey v. Lee, No. 720

No. 720 | 7th Cir. | Jan 2, 1901

After the foregoing statement of the case, GROSSCUP, Circuit Judge, delivered the opinion of the court, as follows:

Paragraph (g), section 57, of the Bankruptcy Act, provides:

“The claims of creditors who have received preferences shall not he allowed unless such creditors shall surrender their preferences.”

Paragraph (a), section CO, provides:

“A person shall he 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.”

Paragraph (b), section 60, 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 canso 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,”

Paragraph (c), section 60, provides:

“If a creditor has been preferred, and afterwards in good faith gives the debtor further credit without security of any kind for property which becomes a part of the debtor’s estate, the amount of such new credit remaining unpaid at the time of the adjudication in bankruptcy may be set off against the amount which would otherwise be recoverable from him.”

Appellant insists that the payments made to Lee, Tweedy & Co.— one thousand, three hundred and thirty-four dollars and fifty-six cents — the 17th of September, 1899, (that being the beginning of the four months’ period previous to the bankruptcy) were a preference, within the meaning of section 60, and that under paragraph (g), section 57, there must be a return of these payments, before the claim can he allowed.

The District Court held that the sale of goods to the bankrupt, after the payments, amounted, within the meaning of paragraph (c), section 60, to a further credit, in good faith, without security, of property going into the bankrupt’s estate; and set off the value of such property against the payments, requiring, as a condition to the allowance of the claim, a return only of the surplus payment.

Counsel for appellant contend that paragraph (c), section 60, is not applicable to the facts stated; that it is intended to affect cases only where the trustee seeks to recover, by suit, preferential payments made to a person having had reasonable cause to believe that a preference was intended as provided for in paragraph (b), section 60; that the employment of the word "recoverable” shows that such a limitation of the right of set off was intended.

We cannot concur in this interpretation. Confessedly, it would limit the right of set off to those only, who, having received the preference knowingly, chose to stand out against its return to the trustee. The creditor willing to make return, without the delay and expense of a suit by tbe trustee, even though the preferential payments had been innocently received, could exercise this impulse toward obedience with the law, only under penalty of losing what otherwise his recalcitrancy would have secured him. We ought not to lean toward an interpretation that would thus put the consenting creditor at a disadvantage, and afford a premium to the designing creditor.

There is nothing in the employment of the word “recoverable” that forces such an interpretation. The primary définition of the word is to “regain,” to “get back again.” Cent. Dict. A thing is “recoverable” when it is susceptible of being “regained,” “gotten back.” The law provides, alternatively, for the regaining of the preferential, payments by the. trustee, first by visiting the creditor with the danger of a penalty — the disallowance of any portion of his claim; and, secondly, in case of the knowing creditor, the right upon the part of the trustee to bring a suit. In either case the payments are gotten back, — there is a recovery, — and in both, — whether under stress of the penalty or by virtue of a suit, — it is the law that makes them recoverable.

Such interpretation compasses the reasonable purpose of the provision. It leaves the estate unimpaired; for the property of the creditor coming into the debtor’s estate is presumably the equivalent of the money value at which it was purchased. It, in substance, simply cancels the effect of the preference, to the extent, only, that such preference no longer harms the interests of the other creditors.

The order will be affirmed.