$ 59.]

Estoppel of Creditors to Petition.

s. c. 2 Lowell, 436; Perry v. Langley, Fed. Cas. 11,006; I N. B. R. 559; s. c. 7 A. L. Reg. 429; Everett v. Derby, 5 Law Rep. 225.) In general, a creditor who assents to a preferential transfer to himself, or who accepts the benefits of a general assignment for the benefit of creditors, is estopped from alleging it as an act of bankruptcy. (In re E. G. Williams, Fed. Cas. 17,703; 14 N. B. R. 132.) But the mere receiving of a preference, not being in itself a fraud, and not being even voidable at the time, and never voidable unless the petition in bankruptcy is filed within four months thereafter, does not estop one from filing a petition if he surrenders his preference. (In re Hunt & Hornell, Fed. Cas. 6,882; 5 N. B. R. 433; in re Rado, Fed. Cas. 6,230; 6 Ben. 230.) In re Sheehan (Fed. Cas. 12,737; 8 N. B. R. 345), it was held that the levy by a creditor of an execution on property of his debtor does not estop him from petitioning to have his debtor adjudged a bankrupt; but the filing of the petition in bankruptcy will be held to be a waiver of the levy and an election by the creditor to proceed in the bankruptcy court. In Coxe v. Hale, decided by the United States Circuit Court for the Northern District of New York (Fed. Cas. 3,310; 10 Blatch. 56; s. c. 8 N. B. R. 562), it was held that a creditor knowing his debtor to be insolvent might prosecute his debtor to judgment, issue execution, and levy on the property of his debtor, and afterwards have the debtor adjudicated bankrupt for allowing his property to be taken on the execution. The court in this case based its decision upon the fact that there was no evidence of an intent on the part of the judgment creditor to secure a preference; and held that one was not estopped from proceeding to put his debtor into bankruptcy by taking a transfer, unless he took it with an intention to secure a preference.

But under the present act a creditor receiving such a preference, even innocently, may have to surrender it before petitioning. (See discussion under section 57g.)

Under the present act it has been held that where a bankrupt made an assignment and various creditors filed their claims therein but no other proceedings were taken with reference thereto and

Estoppel of Creditors to Petition Preferred Creditors.

[Ch. VI. no dividends received, such creditors were not estopped from thereafter filing an involuntary petition in bankruptcy against their debtor. (See Curtis, 2 Am. B. R. 226; 36 C. C. A. 430; 94 Fed. 630.) This case which was decided by the Circuit Court of Appeals of the 7th Circuit contains a valuable discussion of the doctrine of estoppel. (See also decision of the Circuit Court of Appeals for the 6th Circuit in Simonson v. Sinsheimer, 3 Am. B. R. 824; 100 Fed. 426.) And even where in a general assignment under a State law creditors appear in a State court and attack the alleged preferences under such assignment, they are not thereby precluded from attacking such preferences against the assignor in the bankruptcy court. The bankruptcy proceedings and the assignment are not similar suits on the same cause of action. (See decision of the Circuit Court of Appeals for the 6th Circuit, Leidigh Carriage Co. v. Stengle, 2 Am. B. R. 383; 37 C. C. A. 210; 95 Fed. 637.) In order that a creditor may be estopped by any act of his from impeaching the validity of an assignment it must appear that he has accepted an actual benefit under it or that he has assumed such an attitude as would be inconsistent with his attacking it, as where he has recognized it for the purpose of gaining some advantage. In such cases he may not assert its validity whether he did or did not receive, in fact, the benefit supposed. (See Groves v. Rice, 148 N. Y. 227; Haydock v. Coope, 53 id. 68.)

SEC. 60. Preferred Creditors.-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.

b 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

€ 60.]

What are Preferences? - Suffering Judgments.

give a preference, it shall be voidable by the trustee, and he may recover the property or its value from such person.

c 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 estates, 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.

d If a debtor shall, directly or indirectly, in contemplation of the filing of a petition by or against him, pay money or transfer property to an attorney and counselor at law, solicitor in equity, or proctor in admiralty for services to be rendered, the transaction shall be re-examined by the court on petition of the trustee or any creditor and shall only be held valid to the extent of a reasonable amount to be determined by the court, and the excess may be recovered by the trustee for the benefit of the estate.

Analogous Provisions of Former Acts.

As to voidable preferences: R. S. section 5128; act of 1867, section 35; act of 1841, section 2; act of 1800, section 28; also, R. S. section 5129. As to transfers out of the ordinary course of business being presumptively fraudulent: R. S. section 5130; act of 1867, section 35.

Construction of Section 60, Subdivisions a and b-What are preferences?-Most of the preferences arising under this section fall under these two subdivisions. It will be seen by collating the subdivisions that the preferences may consist (1) in the bankrupt suffering judgment to be entered against him, or (2) in making a transfer of his property, with certain other characterizing circumstances to be discussed post.

Suffering Judgments.-The question as to what constitutes the "suffering" of a judgment has already been examined under section 3a (3), sub nom. SUFFERING OR PERMITTING PREFERENCES THRough Legal PROCEEDINGS. In the comments on that section we have seen that in the case of a preference obtained by legal proceedings the debtor's intent is immaterial and it is enough that the creditor has received a preference by such proceeding and the debtor has permitted it to remain undischarged. It is not

Suffering Judgments.

[Ch. VI necessary as it was under the act of 1867, that the debtor should do any affirmative act. If he remains passive and allows his property to be taken by one creditor at the expense of another he has suffered a preference. It is true that the words used in section 3a (3) are "suffered or permitted," while the words used in section 60 are "procured or suffered." But as there is no distinguishable difference between the word "suffered" and the word "permit" except that perhaps that "suffered" implies a greater degree of passivity, and as the words "procured or suffered" are used in the disjunctive, there seems to be no reason for holding that there is any difference between the application of section 3a (3) and section 60 as to the effect of a judgment as an act of bankruptcy or as a preference. In respect to both judgments and transfers, intent on the part of the bankrupt is not made an essential element of a preference by section 60, although it is necessary in a transfer claimed to be an act of bankruptcy under section 3a (2).

The cases decided under the act of 1867 are not applicable because section 35 of that act relating to preferences and fraudulent conveyances declares "that if any person, being insolvent, or in contemplation of insolvency, within four months before the filing of the petition by or against him, with a view to give a preference to any creditor or person having a claim against him, procures any part of his property to be attached, *** the person receiving such payment * * * having reasonable cause to believe such person is insolvent," the preference is void.

* * *

The word "suffer" is not used in section 35 of the act of 1867. (See discussion of this question in the case of In re Thomas, 103 Fed. 272; 4 Am. B. R. 571.)

The present law seems to judge a preference by its effect. If a transfer of the bankrupt's property is made by him, or if he procures, or suffers a judgment against himself, and if 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, then the transferrer is deemed to have given preference.

§ 60.]

The Elements of a Preferential Transfer,

The Elements of a Preferential Transfer.-There are many differences between the language of the present act and the former acts as to what are to be deemed preferences. The provisions of the section under consideration make insolvency an essential element. Contemplation of insolvency or contemplation of bankruptcy is not sufficient as under the former acts. The present statute, by declaring (section I [15]) that insolvency means the state of one whose property is not sufficient in amount at a fair valuation to pay his debts, gives to the word a meaning different from that generally given to it by judicial definition in cases decided under the former act, where it was held to mean inability to pay debts in the ordinary course of business as they matured. Consequently the cases under that statute, deciding what acts are evidence of an intent to give a preference, have only a modified applicability. It is apparent that an act done by one whose property is in reality insufficient in amount at a fair valuation to pay his just debts, may manifest a different intent from the same act done by one who cannot pay his bills as they mature. A person in the latter condition may make a transfer fully believing, and perhaps justified in the belief, that his property, when turned into money, will eventually pay all his debts. Under the former act many a person was an insolvent as the word was then defined by the courts, who would not be under the definition fixed by the present statute; and the reverse is equally true.

Moreover there is a marked difference between the arrangement of the act of 1867 and that of the present act. Under the act of 1867 many of the provisions contained in section 67e, of the present act, relating to fraudulent transfers, were consolidated with the provisions now contained in section 60 of the existing act. Some confusion has arisen because of the failure to distinguish between the provisions of section 60 of the present act and section 67, the first relating to preferences which are not necessarily voidable at common law or contrary to any rule of ethics, and the second relating to transfers which are as a rule voidable at common law irrespective of the Bankruptcy Statute.

Under the act of 1867, sec. 35, it was provided that,