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LOUIS, MO., JULY 5, 1901. has actually received a preference, by a partial payment of his debt, within four months before the bankruptcy of the debtor, cannot have his claims allowed against the estate of the bankrupt without surrendering the pref. erence; and this notwithstanding the fact that he received the payment innocently, and that he had no knowledge or cause to believe that the debtor was insolvent or that a preference was intended. Although four jus. tices dissented. we fail to see on what ground objection can be made to this construction of these sections, unless it be the oft-asserted ground of expediency, that it will "harass and embarrass the business of the country." While we believe the fear thus expressed to be more imaginary than real, still, even if otherwise, congress alone has power to grant relief. It is only in cases of the most apparent absurdity that a judicial tribunal is permitted to disregard the ordinary meaning of the plain terms of the instrument under consideration. This rule was expressed in no uncertain terms in the case of Sturgis v. Crowninshield, 4 Wheat. 202: "If in any case, the plain meaning of a provision, not contradicted by any other provision in the same instrument, is to be disregarded, because we believe the framers Mr. E. C. Brandenburg, in charge of bankruptcy matters at Washington, in his report of November, 1900, to which we gave extended editorial mention in our issue of November 30, 1900, stated that the only section of the Bankrupt Act of 1898 that as construed by the courts was meeting with almost universal disapproval was section 57g referring to the construction put upon that section by the decision in the case of In re Fixen, 51 Cent. L. J. 359, in which it was held that a payment made on account by an insolvent debtor, in the ordinary course of business, within four months prior to his adjudication in bankruptcy, con. stitutes a preference under the bankrupt act, and must be surrendered by the creditor in order to entitle him to participate in the assets of the bankrupt estate. This decision aroused widespread criticism among certain business interests, but we asserted our belief at the time the decision was rendered that any criticism of the construction thus put upon this section was quite unwarranted, it being clearly the only logical construction that could be placed on the plain wording of that much disputed section. Naturally we have awaited with much interest the opinion of the supreme court on this most important question which was handed down May 27, 1901, in the case of Carson, Pirie, Scott & Co. v. Chicago Title & Trust Company. The court expressly sustained the decision of Justice Morrow in the case of Including payment in money made by the re Fixen, and held that a payment of a debt in money is a transfer of property within the purview of Bankruptcy Act 1898, sec. 60a, providing that a debtor shall be deemed to have given a preference, if, being insolvent, he has made a transfer of any of his property, and the effect of the enforcement of such transfer will be to enable one of his creditors to obtain a greater percentage of his debt than other creditors of the same class. The court further held that under section 57g, providing that the claims of creditors of a bankrupt who have received preferences shall not be allowed unless they surrender their preferences, a creditor who of that instrument could not intend what they say, it must be one in which the absurdity and injustice of applying the provision to the case would be so monstrous that all mankind would, without hesitation, unite in rejecting the application." A The rule relating to preferences may be therefore succinctly stated as follows: preference is any transfer of property, in debtor while insolvent, and which has the effect of giving one creditor a greater percentage of his debt than any other creditor of the same class. If a preference is given within four months preceding bankruptcy, and the creditor has cause to believe that a preference was intended, such preference is void and recoverable by the trustee. If the creditor is not aware of his debtor's insolv ency, and receives a payment on account in the ordinary course of business without knowledge that a preference was intended, such payment is, nevertheless, a preference, but the law favors the innocence of the creditor in such case by giving him the option of retaining the preference and not participating in the estate, or of surrendering the preference and sharing equally with other creditors in the distribution of the assets. Thus, if the payment constituting the preference gives him a larger percentage than other creditors, that is his advantage and he may keep it; if the percentage gained by the preference is smaller than that he would obtain by participating in the bankrupt estate, he may surrender his pref erence and prove up his claim along with other creditors. One question is yet undecided. Is the time limit of four months provided for in section 60b in regard to preferences which may be recovered by the trustee applicable also to sections 60a and 57g in regard to preferences hich must be surrendered to entitle the creditor to participate in the estate of the bankrupt? In section 603 no limit is set to when a payment may be a preference, except the insolvency of the debtor. It would therefore seem that the decision in the case of In re Jones, reported in 4 Am. B. R. 563, and holding that section 57g compels a surrender of a preferential payment of money, even though received more than four months prior to bankruptcy, as a condition precedent to sharing in the assets, is the only logical deduction to be drawn from the plain wording of these sections and the construction put upon them by the supreme court. The question of expediency under such construction becomes even more vital than before, but it is one for congress and not the judiciary to determine. NOTES OF IMPORTANT DECISIONS CORPORATIONS-ISSUE OF STOCK FOR PROPERTY.-One of the most important provisions of the Revised Corporation Act of New Jersey has just been construed by the Court of Chancery of that State in the case of Donaldo v. American Smelting and Refining Co., 48 Atl. Rep. 786, which illustrates the liberal policy which characterizes not only the legislative department, but likewise the judiciary of that State in their attitude toward corporations. The Revision of the New Jersey Statutes of 1896 provides that any corporation formed under the act may purchase property and issue stock to the amount of the value of the property, and in the absence of actual fraud, the judgment of the directors as to the value of the property purchased shall be conclusive. A corporation, capitalized for $65,000,000, proposed to issue $45,000,000 additienal stock for property of a competing company. There was evidence that the property was not worth $10,000,000, but the 'business of the company sought to be amalgamated was prosperous, and the company possessed a world-wide and valuable reputation. Held, that the consolidation would not be enjoined at the suit of a stockholder, since the evidence did not show that the directors were knowingly about to purchase the plants at an excessive valuation. The court said: "The fraud referred to in the forty-ninth section is fraud upon the law; and in the words of Allen, J., in Douglas v. Ireland, supra, no other fraudulent intent must be proved 'than that which is evidenced by the act of knowingly issuing stock for property in excess of its value." It must be remembered, however, that a wide discretion in the matter of valuation, as in other matters, is confided to directors. As long as they act in good faith, with honest motives, for honest ends,' the exercise of their discretion will not be interfered with. Given bona fides, and the court will not put its opinion as to values against theirs. The test will be conscious overvaluation, and not ill-advised action." cer DEPOSIT OF SHARE CERTIFICATES RIGHT OF FORECLOSURE. — Full as the books are of cases on the remedies of mortgagees, the subject is frequently raising new points for judicial decision. In the recent case of Harrold v. Plenty (Times, 23d ult.). reported in the latest issue of the Solicitor's Journal, Cozens-Hardy, J., has held that a deposit of a share tificate by way of security without writing gives to the depositee a right of foreclosure as well as a right of realizing the security by sale. That the right of sale is incident to such a security there is no doubt, and, as appears from the recent case of Deverges v. Sandeman, Clark & Co., 49 W. R. 167, there is no necessity to go to the court to enforce it. The depositee of shares of a fluctuating nature is entitled, after due notice to the depositor, to sell them even though no express power of sale has been conferred upon him. But to obtain a right to foreclosure there must be a deposit under such circumstances as to raise an inference of an agreement to execute a legal mortgage. Strictly speaking, foreclosure supposes that there has been a transfer of the legal estate, and the effect of foreclosure is simply to extinguish the right of redemption which equity allows to the mortgagor. "The principle upon which the court acts," said Jessel, M. R., in Carter v. Wake, 4 Ch. D. p. 606, "is that in a regular legal mortgage there has been an actual conveyance of the legal ownership, and then the court bas interfered to prevent that from having its full effect, and when the ground of interference is gone by the non-payment of the debt, the court simply removes the stop it has itself put on." And it is the same where there is an express or implied agreement to execute a legal mortgage. |