THE MATTER OF
(Circuit Court, D. Massachusetts. September 30, 1880.)
Morse <f Stone, for appellants. A. E. Pillsbury, for appellee. CLIFFORD, C. J. Creditors who accepted a preference from a. bankrupt debtor during the operation of the provision of the Revised Statutes, having reasonable cause to believe that the Bame was made or given by the debtor contrary to the provisions of the bankrupt act, could not prove the tlebt or claim on account of which the preference was made or given; nor could such a creditor receive any dividend until he had first surrendered to the assignees all property, money, benefit, or advantage received by him under such preference. Rev. St. § 5084. Congress subsequently amended that provision in certain important particulars. Alterations were made and new provisions adopted to facililate the proceeding; when the requisite number of creditors do not petition, the court may grant delay, and the provision is that if at the expiration of that time they appear, then the matter of bankruptcy shall proceed, and such person shall be adjudged bankrupt. The assignees may recover back the money or property paid, conveyed, Bold, assigned, or transferred in preference, contrary to this act, provided that the person recovering such payment or conveyance had reasonable cause to believe that the debtor was insolvent, and knew that a fraud on the act was intended; and such a person, if a creditor, shall not, in cases of actual fraud on his part, be allowed to prove for more than a moiety of his debt. It appears that the bankrupt filed his voluntary petition in and that he was adjudged bankrupt in a regular proceeding in bankruptcy; the appellee was a creditor of the bankrupt, holding two notes signed by him, payable on demand, and interest, to the order of the creditor, one for $2,000, and the other for $1,000;
IN BE REED.
and that the creditor was also an indorser for the bankrupt· in the sum of $1,450. Preferences were strictly forbidden the bankrupt act, and by the several statutes, the provision being that a creditor, who receives a preference, shall not be. permitted to prove his claim, nor, in case the proof was previously given, shall he receive any dividend therefrom until he shall first surrender to the assiguee all property, D;loney, benefit, or advantage received by him under such preference. Assignees might recover back such a preference under the original act, as well as under the last amendment; but the original act, together with the Revised Statutes, forbid proof by a preferred creditor unless he should surrender his preference, the requir13ment being that the surrender must be voluntary, and before the final judgment against him for the amount of the During the operation of that provision, there would not have been any difficulty in determifling the question before the court, but that provision is repealed by a subsequent enactment, which is inconsistent with the former act. 18 St. at Large, 181. Particular attention must be given to the amendment, or new regulation, which provides that where a preference has been given by payment, assignment, or transfer, and the debtor shall afterwards be adjudged a bankrupt, the assignee may recover back the money or property so paid, assigned, or transferred, contrary to the act, provided that the person receiving such payment or conveyance hall reasonable cause to believe the debtor was insolvent, and knew that a fraud on the act was intended. Then follows the clause of the section in question, which provides that such person, if a creditor, shall not, in case of actual fraud on his part, be allowed to prove for more than a moiety of his debt; and the further provision is that itation on the proof of debts shall apply to cases of voluntary or involuntary bankruptcy. Different judges have construed that provision differently, but the correct construction, in my opinion, is that adopted by Judge Lowell, in Re Currier, 2 Lowell, 436. His decision is to the effect that the newenactment provides, by necessary intendment, that if there has been no actual· fraud, the creditor may prove his whole debt, eveD
after a recovery has been had against him for the preference; which conclusion is certainly justified by the language of the enactment, as plainly and clearly as the other necessary conclusion. that the creditor shall only be allowed to prove for a moiety of his debt in cases of actual fraud. Corresponding views have been held by other judges, whose opinions are also satisf!tctory. In re Kauj1nan v. Houck, 19 B. R. 284. No difficulty would arise, says /v-ixon, J., if the amendment stood alone, but the section before the change expressly prohibited any proof by a creditor who knowingly received a preference. Creditors desired a change, and congress granted their request, as it was deemed a hardship that they should loose their whole claim in case they made an effort to secure an honest debt. Congress interfered to modify the rigor of the prior law, and the only limitation it puts upon the proof of debts is the loss of one-half of the claim when actnal fraud is proved against the creditor; but he may prove the whole if there is no actual fraud in the transaction. Unless such is the necessary implication of the language employed, it is impossible to say what was intended by the law-makers. In re Newcombe, 18 B. R. 85. Contrary opinions have been given by two other judges. In re Stein, 16 B. R. 270; In re Gramer, 13 B. R. 225. Beyond doubt the question must depend upon the true construction of the act of congress, and I am of the opinion that congress intended to moderate the rigor of the prior rules and to allow the creditor, after payment back of the preference, whether by suit or otherwise, to prove their whole debt, in case they had been guilty of no actual fraud. Moneys were paid by the bankrupt to the creditor, within the period constituting a preference, but the as.signee sued the creditor and recovered it back before the creditor offered to prove his debt. Actual fraud, or fraud in fact, is not pretended in this case, as distinguished from what is known as fraud in law. Being of the opinion that congress intended to distinguish between mere technical fraud and fraud in fact, I am of the opinion that the ruling of the district court in allowing the creditor to prove his debt is correct. Decree affirmed.
HOWARD and others.
(Oircuit Oourt, D. Mas8achmett&. Beptember 30, 1880.)
No. 177,466, dated May 16,1876, for an improvement in the method of the leather of old card clothing, from which the teeth have l'emoved, not 8u8tainea.
In Equity. F. A. Dearborn, for complainant. E. P. Howe,'for defendants. LOWELL, C. J. The complainant has letters patent, No. 177,466, dated May 16, 1876, for an improvement in the method of utilizing the leather of old card clothing, from which the teeth have been removed. The invention is fully described in the specification, and again in the claim, which is for "the method of utilizing the leather of old card clothing by heating it with gum tragacanth, and resetting it with teeth reversely to the original teeth, substantially as described... The machinery for setting teeth for cards was old; the treatment with gum tragacanth was old; but it is only within a very few years that old card clothing has been put to use a second time. Theappli<;lation of gum tragacanth does not appear to be important, and it has been used by the defendants to a very slight extent. The actual discovery relied on is that of turning the leather so as to present a different side to the old tooth-setting machine, and then, as the teeth are always set at an angle, the new holes will run across the old holes. If set in the same direction it would be impossible to prevent their working into and enlarging the old holes. The plaintiff made his invention in March or April, 1875. Several witnesses testify that old leather was reset by J. L. Woodcock & Co., of Leicester, Massachusetts, for Edward Gould, superintendent of the Hopeville Manufacturing Company, Worcester, and afterwards of the Darling Mills, on several occasions between November, 1873, and the date of the plaintiff's invention. The history of this manufacture is traced; books and receipts :fix the dates; and what purports v.3,no.13-51