which he had agreed 'to manage and operate' the store on the terms and conditions specified in the contract. Under such circumstances it is clear that the claimant is not included in the class of 'workmen, clerks, traveling or city salesman, or servants' within the meaning of Section 64b, subd. 4 of the Bankruptcy Act; the language there used not being intended to apply to the manager of a business.

*

Question 822: (1) Under what class of creditors did claimant in this case seek to qualify? Why? What was the nature of his work? What did the court hold in reference to

his claim?

(2) To what sum have workmen, clerks, travelling or city salesmen, or servants, priority? Within what time must such sum be earned?

E. Claims of Preferred Creditors.

§ 869. (Bankruptcy, Sec. 79.) Preferred creditor must surrender preference.

Case 823. Keppel v. Bank, 197 U. S. 356.

Facts: Charles A. Goetz became a bankrupt on October 12, 1900. Geo. B. Keppel, the trustee, sued the Tiffin Savings Bank in the Ohio Court to cancel two real estate mortgages executed by Goetz, one to secure a note for four, and the other a note for two thousand dollars. The mortgage to secure the four thousand dollar note was made more than four months before the bankruptcy, the mortgage securing the two thousand dollar note was executed a few days before the bankruptcy, the mortgagor being at the time insolvent and intending to prefer the bank by giving it security for an existing indebtedness. The bank defended the suit, averring its good faith and asserting the validity of both mortgages. In a cross petition it asked for the enforcement of both mortgages. The court held the mortgage securing the four thousand dollar note to be valid, and the mortgage securing the two thousand dollar note to be void. The trustee appealed to a Circuit Court, where a trial de novo

was had. A judgment was entered sustaining the security for the four thousand dollar note, and avoiding that as to the two thousand dollar note. The bank subsequently sought to prove that it was a creditor of the estate upon the note for two thousand dollars, and upon two other unsecured notes aggregating $835.00. The referee refused to allow the proof upon the ground that, as the bank had compelled the trustee to sue to cancel the security and a judgment nullifying it had been obtained, the bank had lost the right to prove any claim against the estate. The District Judge, upon review, reversed this ruling. The Circuit Court of Appeals, to which the issue was taken, certified the case to the present Court.

MR. JUSTICE WHITE delivered the opinion of the Court: "The following are the questions asked by the Court of Appeals:

"First: Can a creditor of a bankrupt, who has received a merely voidable preference, and who has in good faith retained such preference until deprived thereof by the judgment of a court upon a suit by the trustee, thereafter prove the debt so voidably preferred?

666*

"Third: If the failure to "voluntarily" surrender the mortgage given to secure the $2,000 note operates to prevent the allowance of that note, does the penalty extend to and require the disallowance of both the other claims?'

"Before we develop the legal principles essential to a solution of the first question it is to be observed that the facts stated in the certificate and implied by the question show that the bank acted in good faith when it accepted the mortgage and when it subsequently insisted that the trustee should prove the existence of the facts which, it was charged, vitiated the security.

**

"On the one hand it is insisted that a creditor who has not surrendered a preference until compelled to do so by a decree of a court cannot be allowed to prove any

claim against the estate. On the other hand, it is urged that no such penalty is imposed by the bankruptcy act, and hence, the creditor, on an extinguishment of a preference, by whatever means, may prove his claims. These contentions must be determined by the text, originally considered, of section 57g of the bankrupt act, providing that 'the claims of creditors who have received preferences shall not be allowed unless such creditors shall surrender their preferences.'

"The text is, that preferred creditors shall not prove their claims until they have surrendered their prefer

ences.

"We think it clear that the fundamental purpose of the provision in question was to secure an equality of distribution of the assets of a bankrupt estate. This must be the case, since, if a creditor, having a preference, retained the preference, and at the same time proved his debt and participated in the distribution of the estate, an advantage would be secured not contemplated by the law. Equality of distribution being the purpose intended to be effected by the provision, to interpret it as forbidding a creditor from proving his claim after a surrender of his preference, because such surrender was not voluntary, would frustrate the object of the provision, since it would give the bankrupt estate the benefit of the surrender or cancellation of the preference, and yet deprive the creditor of any right to participate, thus creating an inequality. But, it is said, although this is true, as the statute is plain, its terms cannot be disregarded by allowing that to be done which it expressly forbids. This rests upon the assumption that the word 'surrender' necessarily implies only voluntary actions, and hence excludes the right to prove where the surrender is the result of a recovery compelled by judgment or decree.

"The word 'surrender,' however, does not exclude compelled action, but to the contrary generally implies such action. That this is the primary and commonly accepted meaning of the word is shown by the dictionaries. Thus, the Standard Dictionary defines its meaning as follows:

1. To yield possession of to another upon compulsion or demand, or under pressure of a superior force; as to surrender an army or fort.

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[The court by this course of reasoning decides that a claimant who in good faith retains a preference until compelled to yield it up, has "surrendered" the preference within the meaning of the bankruptcy act that a preferred creditor cannot prove his claim until he has surrendered his preference, and then, by implication he may prove it. The opinion is very long and cannot be given in full. Four justices dissented.

The first question being so answered, the other question above stated required no response.]

Case 824. Pirie v. C. T. & T. Co., 182 United States Reports, 438.

Facts: In bankruptcy proceedings in matter of Frank Brothers, Carson, Pirie, Scott & Company filed a claim for goods sold and delivered to the bankrupt firm for the sum of $3,093.98. The claim was allowed and subsequently a claim of 15% was paid thereon.

The Chicago Title and Trust Company, trustee, subsequently filed a petition to reconsider and disallow the claim upon the ground that the debtor within four months prior to the bankruptcy had paid Carson, Pirie, Scott & Company large sums of money as preferences, which preferences had not been surrendered.

Carson, P., S. & Co. filed an answer to this admitting the receipt of $1,336.79 but setting forth that they did not know or have reason to believe that a preference was intended.

The referee decided that the claim should be reconsidered and disallowed. On review, the District Court entered an order to the same effect.

C. P. S. & Co. took an appeal to the Circuit Court of Appeals, which affirmed the order of the District Court. The case was then brought to this court.

MR. JUSTICE MCKENNA delivered the opinion of the Court:

"The question presented by this record is whether

payments in money made by an insolvent debtor to a creditor, the debtor not intending to give a preference, and the creditor not having reasonable cause to believe that a preference was intended, did nevertheless constitute a preference within the meaning of the bankrupt act of 1898, and were required to be surrendered as a condition of proving the balance of the debt or other claims of the creditor.

[The court quotes Sec. 60a, Bankruptcy Act, and decides that a payment in money may be a preference as well as a transfer of property. This part of the answer being disposed of the court then decides that while it is necessary in a preference as an an act of bankruptcy that an intent to prefer be present, and while it is necessary in a preference which a trustee may forcibly set aside, that the creditor have reason to believe that a preference was intended, a creditor who has received a preference that he cannot be compelled to surrender, cannot prove the balance of his claim unless he does surrender it.]

"As we have already said, if the preference exceed the share of the bankrupt's estate which the creditor would be entitled to, he may keep the preference. If it be less he may surrender it and share equally with the other creditors. If the purposes of the statute are to be considered, this is certainly not punishment, but benefit. If it is discrimination at all, it is discrimination against the other creditors.'

Judgment of the Circuit Court of Appeals affirmed. The Chief Justice, Mr. Justice Shiras, Mr. Justice White, and Mr. Justice Peckham dissented.]

a.

§ 870.

Case 825.

F. Dividends on Claims.

(Bankruptcy, Sec. 80.) How payable.

Bankruptcy Act, Sec. 65.

"Sec. 65. Declaration and Payment of Dividends.Dividends of an equal per centum shall be declared