ALEx:Al'I'PER V. GALT.
and others,Assignaes, etc., v.
(District Oourt, N. D.lllinoi8. November 1, 1881.)
1. BANKRUPTcy-PREFERENCEB-WHEN VALID.
Preferential payments, made more than three months before bankruptcy, assignee in cannot be set aside in favor of
Assignees in bankruptcy do not succeed to the. rights of assignees in insolvency whose assignment they have had set aside.
In Bankruptcy. McFarren, f()r plaintiffs. Chas. H. Roberts and Manahanet Ward, for defendant. :BLODgETT, D. J. This action of trover to recover a proml.f3sory note 'madebyoJ;le Williams to the hankrupts, Patterson & Co., aiid by them, as is a,llegeq. by .plaintiffs, fraudulently indorsed. and delivered to defendants. <The niateriaJfacts; as shown without disvute in the or by iJtipulation in writing, are as follows:"
Patterson & Co. wereenga:ged inJlUsil1ess !bankers at Sterling, in this district, from 1869. to the sixteenth of. January, J878. On the seventeenth of January, 1878, said Arm made a voluntary assignment of their property to one Roswell Champion, in trust; for the payment of t.heir debts, but Champion; the assignee, did not file his inventory and bond with the clerk of the county courtof Whiteside county, wheretbeparties resided, pursuant to the statute of this state in regard to voluntary assignlllents, approved May 22, 1877, until the fifth of February, 1878. . On the twenty-fourth day of April, 1878, a petition in bankruptcy was flIed in this court against Patterson & .co., on which they were subsequently adjUdged bankrupts, and plaintiffs have been duly appointed and qualified assignees; and, under a decree of this court, in a suit brought by plaintiffs as assignees in bankruptcy, the assignment to Champion was set aside on the twentieth of July, 1879. It also appears in proof, and is undisputed, that defendant, Galt, was treasurer of a cheese factory in the vicinity of Sterling, and kept his funds as such treasurer on deposit with Patterson & Co., and that on the sixteenth of January, 1878, there was to his credit on this deposit . account about $1,540; that about two months before the sixteenth of January, defendant told J. M. Patterson, one of the firm, that the money to his credit as treasurer belonged to the cheese factory, and that he would draw it out unless he was sure of getting it or having it protected, and that Patterson then told him he should be protected. On the sixteenth of January Patterson & Co. were insolvent and on the eve of making an assignment for the benefit of their creditors, whenJ. M. Patterson took the note in question from the tiles of bills receivable belonging to his banking firm, computed the interest on it to that date, and charged the sum then due for principal and interest to the defendant's account as treasurer, indorsed the note with the firm name, and placed it, in an envelope, before them in the bank vault, containing some
other papers belonging to defendant, and credited bills receivable with the proceeds of the note so charged defendant. During the businessbours of the 16th the bank was kept open for business. The bank did not open on the morning of the seventeenth of January, and about 9 o'clock in the morning the deed of assignment was delivered. to Champion, assignee, and be was placed in possession of the bank by giving him a key, although another key was retained by the firm, and the inventory was not completed until several days after. The note in question was never delivered to Champion, nor was it described in the inventory, and sorrie time during the forenoon of the 17th defendant came to the bank, and, on being told what had been done in regard to the transfer of the note to him, assented to it, and took the note away. He has since brought suit upon the note against the maker and collected the amount due thereon.
Plaintiffs do not claim that this transaction is affected by the provisions of sections 5128 and 5129, as amended by section 10 of the act of June 22, 1874, but they insist that this property was conveyed by the bankrupt in fraud of ,his creditors, and can be attached tinder the provision of section 5046; or, in 'other words, that this transfer is so far tainted with actual fraud as to be voidable outside of the provisions of the bankrupt law. There can be no doubt that the title to property conveyed or converted by a bankrupt before bankruptcy, with a fraudulent animus or intent, passes to his assignee uuder section 5046, and the assignee can take Bteps to Bet aside the fraudulent. transfer or conveyance. But a mere preference or payment of one creditor over another is not of itself fraudulent. As was said by the supreme court of Pennsylvania, Judge Strong delivering the opinion:
, "An insolvent debtor lUay prefer One creditor to another, either by judgment, deed, or by any mode, if his motive be all honest intent to pay the precreditors be delayed or wholly prevente4 ferred debt, although the from obtaining payment. The payment of a debt to one creditor is no fraud upon another creditor." York Cottnty Bank v. Carter, 38 Pa. St. 446.
The principle which runs all through the cases is that to make !l. preferential payment of an indebtedness is not fraudulent; while if, under pretext of paying one creditor, a debtor conveys to him property of value largely in excess of the debt, with the design of thereby hindering and delaying other creditors, and securing some direct or indirect benefit to himself, the transaction may be deemed fraudulent. rl'ested by this rule I can see no element of fraud in this tr.ansaction. There is no doubt that Patterson & Co. owed defendant, as treasurer, more than the amount of this note. Nor is there any doubt, from the proof, that he allowed the money to remain on deposit with th"'U upon the assurance that he should be secured 01' protected. When Patterson & Co. saw that their failure was inevi-
table they had the right to make good the promise that he should be protected. It is' tEue that' if: Patterson & Co. had been adjudged bankrupts within three months after the transfer of this note, their assignees in bankruptcy could have attacked this transfer as a preference contrary to the express provisions of the bankrupt law then in force, and, perhaps set it aside. But the provisions of the bankrupt la,w", prohibitiqg, pre,ferentialpayments and conveyances, was not in apt ,time, and this transaction is to be considered as if no ban.krupt law had ever existed. Complainants have cited a large number of decisions by the Iowa courts upon the statute of that'state regulating assignments With preferences,:and insist that as the statute of Illinois, in r13gard to x.oluntary assignments, approved May 22, 1877, was substantially 'rlopied the 'Iowa statute, these decisions should be 'deemed controlling.,' There would seem to be no doubt that the doctrine of 'those that if an insolvent 'debtor makes severai' preferential ,pay'tocreditprs, or c()Ilveyances of property in pliloy,Plent of debts,in such sequence to each other, and to an assignment in trust fortha benefit of creditors, that they are all to be deemed as essentially one transaction, the preference will be set' aside as being invi()lation of the spirit of these statutes. Lampson v. Arnold, 19 Iowa, 480. And in this class of cases it has been held that the voluntary assignee can .set aside the preference and recover the' property transferred, or cmoneypaid. These authorities only go to the point that if the transfer ofihis note to defendant was so intimately related to the assign.ment to Champion that they could be held to be one transaction, Champion could have held the note as against defendant. But when this court' set the assignment to Champion aside, it did not place plaintiffs in his shoes as against 'defendant; that is, Hdoes not follow, becauseChampionmigbt' have attacked this transfer as a enee, that, therefore, the plaintiffs can do so. They do not succeed 'the Illinois statute, if he had any, but to his rights of action must rest UpOn, their. rights npder the 'bankrupt law. This, tben, being atm,o$t only a preferential payment, made morl;) tQan three monthsbefoi'ebankruptoy, cannot beset aside in favor of plaintiffs., Defendan,t guilty.
CHALMERS SPENCE PATENT NON-CONDUCTOR CO. V. PIERCE
others.(Circuit Court, E. D. PennsyZvania. August 15, 1881.)
PATENT-INFRINGEMENT-COVERING FOR BOILER.
Patent No. 55,598, for an improved mode of covering steam-boilers, consistbig of a covering of felt, supported on an open metallic frame-work separated from the boiler by studs or struts, held, to be, infringed by a covering 'of felt, supported on a metal jacket, so punched that it is full of V-shaped points; which separate it from the boiler.
Hearing on Bill, Answer, and Proofs.
This was a bill for an injunction against the infringement by defendants of letters patent No. 55,598, issued to John Ashcroft, under date of June 19, 1866, for an "improved mode of covering steam-boilers or pipes." Defendants the infringement. Plaintiff's invention consisted in covering steam-boilers with a covering of felt, supported on a frame-work of' wire or small iron bars, forming an open frame-work removed a short distance from the boiler and supported by studs or struts. Defendants' invention consisted of a covering of felt, supported on a sheet-iron metal jacket, so punched that it was full of V-shaped points, which touched the surface of the boiler and held the jacket equidistant from the surface.
E. B. Barnum, for complainant.
J. R. Sypher, for respondents.
D. J. In a former suit (against Camp and others) the court passed upon the plaintiff's patent, and held it to be valid. The only question now involved is that of infringement; and this was decided against defendant on the motion for preliminary injunction. Comparing the two devices, we found no material difference between them, and McKennan, C. J., then delivered the following opinion:
"There is but a single question, and a very narrow one, involved in this hearing. It is admitted that this patent is valid, and that in so far as it was rendered valid by an invention of John Ashcroft, it is not in question upon this motion. It is alleged, and has been argued here, that John Ashcroft's invention consisted in the devising of this jacket and its support upon the outer surface of the boiler to be covered. Now the patentee says this 'framework, C, can be easily constructed or built up of wire, small iron bars, or gaspipes, unwelded, forming an open frame-work with meshes of the size of the metallic bars used, for the size of the meshes must depend upon the size of the boiler, or pipe, being a matter of mere judgment.' The claim of the patent refers to the construction and operation of this jacket, as it is to bll con8trncted and operated, substantially as described in the patent; that is to say, an open frame-work supported on the boiler by appropriate studs. 'This frame-work must be supported by suitable studs, or struts, which can be. constrncteLl in
*Reported by h'rank P, Prichard, Esq., of the Philadelphia bar.