Court Opinion

ID: 8636833
Source: CourtListenerOpinion
Date Created: 2022-11-24 19:46:37.687655+00
Date Added: 2024-06-11T16:55:57.440988
License: Public Domain

LONGYEAR, District Judge.
As to the construction of the second clause of section 23 of the bankrupt act. The right to prove claims against a bankrupt’s estate is conferred, and the claims which may be proven are defined by section 19. Section 19 is broad enough to cover a claim like that of Fisher, on account of which a preference had been accepted, and but for section 23 such claim would undoubtedly be provable under said section 19. Section 23 operates to suspend the right confeired by section 19 until the creditor holding such preferred claim shall first have surrendered to the assignee all property, etc., received by him under such preference. When such surrender is made the suspension ceases, and the right conferred by section 19, revives and is in full force the same as if no such preference had existed. The office of the clause of section 23, under consideration, is therefore, in the first instance, that of suspension merely, to ripen, how’ever, into absolute prohibition in case of a refusal or neglect to surrender. In re Tonkin [Case No. 14,094]. The right, therefore, to prove the claim after a surrender has been made is not derived from section 23, but is conferi-ed by section 19.
*804As to the construction of the last clause of section 39, absolutely prohibiting the proof of claims in certain cases. It is a well settled rule that in putting a construction upon any part of a statute, the whole is to be considered, and effect is to be given, if possible, to every clause and section of it; and it is the duty of courts, as far as practicable, so to reconcile the different provisions as to make the whole act consistent and harmonious. Sedg. St. & Const Law, 238; Com. v. Duane, 1 Bin. 601; Com. v. Alger, 7 Cush. 53-89; Attorney General v. Detroit & E. P. R. Co., 2 Mich. 138.
The position contended for in opposition to the right of Fisher to prove his debt, viz.; That no creditor who has accepted a preference, having reasonable cause to believe a fraud on the act was intended, should be allowed to prove his debt, would render the words “until he shall first have surrendered,” etc., in section 23, inoperative and of no force or effect whatever. It will not do to say that those words of section 23, above quoted, are to be given effect in voluntary and not in involuntary cases, because that would involve the absurdity of saying that the quality and consequences of the act of the creditor in accepting a preference, having reasonable cause to believe a fraud upon the act was intended, are to be measured and judged of, not by the act itself, but by what the debtor may see fit subsequently to do or. omit to do. That is, if the debtor should see fit to go into voluntary bankruptcy, then the creditor may surrender and prove his debt; but on the other hand, if the debtor should see fit to omit going into voluntary bankruptcy, and some of his other creditors, taking advantage of that circumstance, should put him into involuntary bankruptcy, then such preferred creditor may not surrender and prove his debt, no matter how anxious and willing he may be to do so, and this, too, notwithstanding that the vitiating element of the act of accenting a preference, the fraud is the same in the one case as in the other. It must be a strong necessity growing out of positive and unmistakable provisions of the act, that would induce a court to adopt a construction leading to such unreasonable and inconsistent results. Let us see if that necessity exists, and if a construction of the clause of section 39, under consideration, cannot be adopted, which will lead to more consistent and harmonious results. In Re Tonkin [Case No. 14,094], above cited, this court held that the “recovery” provided for in the first clause of section 35, is the alternative of the “surrender” contemplated by the second clause of section 23; that sections 35 and 39 must be construed together in pari materia; and that, so far as those sections relate to the same class of matters, all the qualifications, conditions, and prohibitions of the one will apply equally to the other. This view has been recently maintained also by Judge Dillon in the United States circuit court in Missouri. Bean v. Brookmire [Case No. 1,168]. This court further held in Re Tonkin, that the class of cases provided for in the first clause of section 35, is also provided for in section 39, and therefore, under the rule stated, the express prohibition contained in the last clause of section 39, applies equally to section 35; that the conditional prohibition of section 23 becomes absolute and perpetual in case of a recovery under the first clause of section 35, and that so far as that class of cases, viz., unlawful preferences, is concerned, the express prohibition of section 39 was unnecessary, but that sections 35 and 39 provide for recovery in other cases than those of preference merely, such as payments, sales made, etc., with a view to prevent the debt- or’s property from coming to his assignee in bankruptcy; money, goods, etc., obtained by a creditor as an inducement to forbear opposition to the bankrupt’s discharge; and assignments, gifts, sales, etc., with intent to delay, defraud, or hinder creditors, to none of which the prohibition of section 23 will apply. And this court, in view of the above considerations, further held as follows: “The express prohibition contained in the last clause of section 39 was inserted there in order to prescribe one general rule, applicable alike to all cases of recovery of money, or property, paid, conveyed, etc., to creditors, contrary to the bankrupt act.”
After a thorough and careful reconsideration, I see no grounds for changing, or in any manner qualifying, the above construction of the clauses in question, and although that construction was given in a case somewhat different from the present one, yet it is fully applicable to this case.
The construction above given to the clauses in question, results then as follows: First. That the right of a preferred creditor to prove his debt is conferred by the bankrupt act, independent of the second clause of section 23, and that the operation of that clause is merely to suspend that right until such creditor shall have surrendered all property, etc., as therein provided. Second. That upon such surrender being made the right of such creditor to prove his debt revives, and is in full force, the same as if such suspension had never existed. This applies the same whether the proceedings in bankruptcy are voluntary or involuntary. Third. That the prohibition of the right of a preferred creditor to prove his debt, contained in the last clause of section 39, applies only in cases where a recovery has been had under sections 35 and 39; and, that the right to surrender under section 23 ceases, and the right of such creditor to prove his debt is forever barred after such recovery.
This construction gives to each clause of the act under consideration full force and effect, and makes one consistent and harmonious system of the two. It is entirely consistent, too, with the general purpose and scope of the bankrupt act. It says to the *805creditor who has accepted an unlawful preference, surrender what you have thus unlawfully received, and thereby make the estate whole, as It would have been but for your act, so that no harm shall come to the other creditors on account of it, and you may come in and share with the other creditors; but if you refuse or neglect to do this, what you have so received shall be recovered from you, and you shall be deprived of all benefit or advantage on account of your debt.
In this case, it appearing from the facts certified by the register that the creditor, Jeremiah Fisher, has surrendered to the as-signee all property, etc., received by him under his preference, within the meaning of section 23 of the bankrupt act, he may prove his debt against the said bankrupt’s estate.