On the 24th of February, Dibblee & Co. owed Iselin & Co., $47,784.51, for notes of the former, purchased, undoubtedly, with the purpose and certainly with the effect of keeping up the credit of the insolvent firm, and as plainly with entire confidence that Mr. Iselin would in any event be protected. These notes, to the amount of $47,784.51, all became due between February 24 and March 25, 1869. On the 25th of February, 1869, Iselin & Co. placed in the hands of Dibblee, stocks and securities to the nominal amount of $58,000, and of the market value of $54,000. Upon these stocks and securities Dibblee & Co. borrowed $46,000. Of the notes held by Iselin, $1,601.40 was paid on the 24th February. All the residue were paid at or before their maturity, between February 25 and March 24. They amounted to within a very few dollars of the amount borrowed by Dibblee on Iselin's securities. There is no proof that the bankrupts had any other means to pay those notes. Nor is there any evidence that the money raised on these securities was acquired or used for any other purpose. It is a legal and logical inference, that the money raised on the securities of Iselin was used to pay the debts then due him, and that the advance of those securities was made for that purpose. The transaction was an evasion. It was not a bona fide loan, in the actual course of business, for which security was taken at the time. It was a contrivance by which, in effect, the creditor obtained security at that time for his existing debt, merely changing its form. Scammon v. Cole, 3 Nat. Bk. Reg., 393, 409. And the security was an extraordinary one, which, of itself, is evidence, both of the debtor's precarious condition and of the creditor's knowledge of it. Scammon v. Cole, supra; Walbrun v. Babbitt, 16 Wall., 577, 21 L. ed., 489. not in the usual course of business and one But it is sufficient that the debtor was hopelessly insolvent and on the verge of bankruptcy when the confession was filed and the judgment entered. The preference by means of the judgment was not given or obtained when the paper authorizing the judgment was executed and delivered to the creditors, but when it was used and the judgment was entered. Until then, there was only a continuing consent or authority; the act was done when the authority was used, and the validity of the act depends upon the conditions existing at that time. Golson v. Neihoff, 5 Nat. Bk. Reg., 56, 60; Hood v. Karper, 5 Nat. Bk. Reg., 358; In re F. C. Lord, 5 Nat. Bk. Reg., 318, 328; Bank of Leavenworth v. Hunt, 11 Wall., 392, 20 L. ed., 190. If the judgment had been entered before, the obtaining a preference then by an execution and levy under it, would have been a violation of the Bankruptcy Act. Vogle v. Lathrop, 4 Nat. Bk. Reg., 439; Thornhill v. Link, 8 Nat. Bk. Reg., 521. No doctrine of relation will be recognized by the courts, which would make an act, which was invalid and a fraud upon the Bankrupt Law at the time when it occurred, legal and valid because it was promised or agreed to previously, when the circumstances of the parties were different. Graham v. Stark, 3 Nat. Bk. Reg., 357; Bank of Leavenworth v. Hunt, 11 Wall., 391, 20 L. ed., 190; see also In re Eldridge, 2 Biss., 362; In re Eldridge, 4 Nat. Bk. Reg., 498; Harvey v. Crane, 5 Nat. Bk. Reg., 218. Messrs. Henry W. Clark and S. P. Nash, for A. & I. Iselin. The securities delivered to Iselin & Co. Apr. 5, 1869, were to replace others delivered a year before, and intrusted from time to time to the bankrupts for collection. They were, therefore, not delivered to secure an unsecured debt, nor to give a preference, but simply in continuance of an existing security. The notes of Dibblee & Co. which Iselin & Co. had purchased in open market, $47,784.51, were paid in due course of business, and such payment was in no sense in fraud of the Ac'. The proof fails to establish that Iselin & Co., or either member of that firm, had reasonable cause to believe Dibblee & Co. to be insolvent or acting in contemplation of insolvency, at any time previous to the entry of the judgment, April 30, 1869, or that they had reasonable cause to believe that a fraud on the Act was in tended by Dibblee & Co. previous to the filing of the petition. It was claimed by the complainant that the deposit of notes made on the 6th of August 1868, as security for the $61,000 then advanced, was an insufficient security, by reason of the character of the assets so deposited, and that the subsequent exchanges of collaterals were collusive for the purpose of improving the character of the security. This, if true, would ferring any intent to evade the Bankrupt Act. be an exceedingly far fetched argument for inIselin & Co. made the loan on the faith of the security, and were entitled to sufficient security. On the Cross Appeal. A warrant of attorney to confess judgment, executed by one partner for a partnership debt (so stated in the "statement," forming part of the "statement and confession of judgment"), is binding upon the other partners so as to hold the partnership property. Leahey v. Kingon, 22 How. Pr., 209; Von Keller v. Muller, 3 Abb., 375, n; Graser v. Stellwagen, 25 N. Y., 315. The confession of judgment was not given to secure a pre-existing debt, but to secure a loan made by the defendants to the bankrupts at the time of its execution. The entry of the judgment, the issuing of the execution, and the levy upon the bankrupt's property were all acts of the defendants or their agents, and were only acts of due and proper diligence on their part for the collection of the judgment debt. A judgment property obtained in good faith, will be protected, and all legal proceedings under it, taken by the creditor, in diligent enforcement of his right to realize the debt, will be sustained. Wilson v. City Bank, 17 Wall., 473, 21 L. ed. 723. The advance of $54,100 on Feb. 25, 1869, on the security of the confession of judgment, was But the confession of judgment, although valid, was an imperfect security. It was a power coupled with an interest; a power which Dibblee & Co. had no right to revoke. Story, Ag., secs. 477, 482, 483. If it did not operate as an assignment, it created an obligation on the part of Dibblee & Co. not to defeat the security it was intended to furnish. People v. Tioga C. P. 19 Wend., 73; Bromley v. Holland, 7 Ves., 3; Knapp v. Alvord, 10 Paige, 205. The policy of the bankrupt laws, indeed, forbids a debtor from transferring his assets, or suffering them to be taken, to prefer a creditor. But it permits him to effectuate securities on the faith of which he has obtained money or property which has gone to swell his assets. This is not giving a preference. It does not require him to do the iniquity of attempting to invalidate such securities. In Harris v. Rickett, 4 H. & N., 1, the trader produced an advance on a promise to give a bill of sale to secure it if called upon to do so. He afterwards gave the bill of sale, which being attacked by the assignees, the court said that being for an antecedent debt, etc., it was, prima facie, an act of bankruptcy, but sustained it on the ground "That, at the time of the loan which constituted the debt, it had been agreed between the bankrupt and the defendant that this security should be given." This point was also ruled in Hutton v. Critwell, 1 El. & B., 15. Both these cases were cited as authority in Tiffany v. Boatman's Institution, supra, Any promise of security which would make the security valid, if given at the precise time the money is advanced, protects it if given afterwards in pursuance of the obligation. See 1 Archb. Bankr. (ed. of 1867), 111; Edwards v. Glyn, 2 El. & E., 29; Sinclair v. Wilson, 20 Beav., 324; Ex parte Kindred, 29 Law Times, 250; Bills v. Smith, 12 Law T. (N. S.), 22; S. C., 11 Jur. N. S., 155. In Krehl v. The Great Central Gas Co., L. R., 5 Exch., 289, a guaranty society furnished to one H., who was about to enter the service of a company, security for his fidelity. taking from him a power, in case of his default to seize his goods by way of indemnity. Such a seizure was made by the guaranty company, after an act of bankruptcy by H., but without notice of such act. The seizure was protected, as against the assignees. It is true the question was disposed of by a construction of the language of the English Act, but it was urged on the one side that the power was a mere license; on the other, that it was a continuing security; and this last view was the real basis of the decision. "The whole matter, and not the mere act of seizure, must be looked at, and shows the taking possession of the goods, under a license that was not revocable." Channell, B., 294. In Mitchell v. Winslow, 2 Story, 630, it was held that a chattel mortgage, which was by its terms to cover subsequently acquired property, although it did not at law attach upon such property, was good in equity against the assignee in bankruptcy of the mortgagor. But it is not necessary to go to the extent of these authorities. It is sufficient that the original transaction was a fresh advance upon security and, therefore, not a preference. Although this security was not perfect until the confession was put on file, the judg ment docketed, the execution issued and a levy made, all this required no act on the part of the debtor. The case supposed, therefore, by the learned judge, of a promise to give a mortgage as security upon obtaining a loan, and neglecting to do so until after insolvency, is not in point An apter illustration would be the giving of a mortgage at the time of the loan, which the creditor should neglect to record. For a creditor to perfect by his own act a security given in good faith for an advance made upon the strength of it, is not taking a preference; nor is the debtor's not actively taking steps to defeat a security given in good faith, the suffering of a preference. Mr. Justice Strong delivered the opinion of the court: In the court below this case was a bill in equity, filed by the assignee of Dibblee and Company, bankrupts, to recover the value of certain payments and transfers of property made by them to the defendants, and charged to have been made in fraud of the Bankrupt Act. Upon the hearing, a decree was made partially sustaining the complaint of the assignee, but refusing to grant all the relief he asked. The bankrupts were adjudicated such on the 2d day of June, 1869, on the petition of their creditors filed May 3 of that year. Prior to that time they had been doing business in the City of New York, and in the course of their business they had obtained numerous bills receivable which, at different times, they pledged to the defendants for money borrowed. On the 6th of August, 1868, they borrowed from the defendants $61,000, for which they gave their four notes, payable, one in September, one in October, one in November, and the other in December of that year, and at the same time they transferred to the defendants as collateral security for their loan, one hundred and forty-seven bills receivable by them, amounting in the aggregate to $72,170.42. Many of these bills were past due when they were pledged. On the day next following the loan, the notes held as collateral were returned to Dibblee & Co. for convenience of collection, to be collected for account of the defendants, or to be replaced by others. Obviously this deposit in no degree affected the title of the defendants to the notes. It merely facilitated collections. In White v. Platt, 5 Den., 269, it was said by the court that "Where promissory notes are pledged by a debtor to secure a debt, the pledgee acquires a special property in them. That property is not lost by their being redelivered to the pledgor to enable him to collect them, the principal debt being still unpaid. Money which he may collect upon them is the specific property of the creditor. It is deemed collected by the debtor in a fiduciary capacity." Of the four notes discounted by the defendants on the 6th of August, 1868, the one which fell due in September was paid at maturity, and the collaterals pledged for it were surrendered. The other notes were not paid when they fell due, but were renewed from time to time and extended, and the collaterals held by them were in part replaced by others. Thus, on the 4th day of December, 1868, the day when the bankrupts' last note matured, the amount of the collaterals pledged to the defendants was $63,240.61, and they were all or nearly all good. It does not appear that any of them were uncollectible. For some of these, others were substituted up to January 15, 1869, and on the 5th of April, 1869, the amount of collaterals pledged for the payment of the three notes given by the bankrupt, was either $63,318.89 or $65,013.15. On that day they were all withdrawn, and others amounting to $62,027.34 were cotemporaneously pledged in their stead. The transaction was a mere exchange of securities. The new collaterals were not pledged to secure an unsecured debt or to give any preference to the defendants. 369*] They *were no addition to what the defendants had before; to what they had held from August 6, 1868, when the loan to Dibblee & Co. was made. The exchange, therefore, withdrew nothing from the creditors generally which had not long before been withdrawn. The defendants owned the securities they then surrendered, and by surrendering them they enlarged the debtors' estate to the extent of the securities received in exchange. In Cook v. Tullis, 18 Wall., 382, 21 L. ed., 933, we held that there is nothing in the Bankrupt Law which prevents an insolvent from dealing with his property-selling or exchanging it for other property at any time before proceedings in bankruptcy are taken by or against him, provided such dealing be conducted without any purpose to delay or defraud his creditors, or to give a preference to any one, and does not impair the value of his estate. The same doctrine was asserted in its fullest extent in Tiffany v. Sav. Inst., 18 Wall., 375, 21 L. ed., 868. ceeds were surrendered for other collaterals, as any security, except in part a confession of It is argued on behalf of the assignee that the notes discounted by the defendants for the bankrupts in August, 1868, were a mere re-bankrupts sums amounting to $20,000, without newal of an antecedent debt, and not a loan or a discount at that time. If this be conceded it will not help the assignee. The transaction, whatever it was, was nine months before the petition for bankruptcy was filed, and nothing in the 35th section of the Bankrupt Act would justify its disturbance. But it is said the transfer of collaterals to secure the notes was a fraud and a sham, and this is asserted because the collaterals were placed in the hands of Dibblee & Co. for collection on account of the defendants. We do not think so. It has been said already, and decided, as we have noticed, that a pledgee does not lose his property in collaterals pledged to him by putting them into the hands of the pledgor for collection. In this case there was peculiar reason for allowing Dibblee & Co. to collect them for the defendants. Many of them, nearly all, were past due. They could not, therefore, be collected through banks, and the convenience of 370*] all parties was subserved by placing them where the debtors might be expected to come. If, then, the property in these collaterals was by the pledge vested in the defendants, and remained in them until they or their pro But the defendants below have also appealed. The circuit court decreed partially against them on the following state of facts: on the 25th of February, 1869, Dibblee & Co. gave a judg ment note or bill, in the form authorized by the New York Code, to secure $54,100 loaned by the defendants to them. A portion of this sum had been advanced on the 21st of Febru-, ary, for which a judgment bill was then given; another portion on the 23d of February, for which a similar security was then given, and the remainder was advanced February 24th. On the 25th of that month the previous confessions of judgment were given up and destroyed, and one confession for the entire loan, $54,100, was taken by the defendants. The advances for which this confession was taken were made in negotiable state and railroad bonds, of a larger nominal value, but they were taken by the bankrupts at their actual cash value at the time. They were made to enable the bankrupts to borrow money, and upon deposting the securities lent as collateral they ob372*] tained $46,000 from three banks *with which they did business. That this transaction thus far was perfectly legitimate can hardly be doubted, and so it was regarded by the court below. The bankrupts acquired property by it, to the full value of the security they gave. They parted with nothing that they then had. If the defendants had known that they were insolvent at the time, it would make no difference. The confession of judgment was not given for a pre-existing debt. And if it had been, the defendants had, as we have stated, no reasonable cause to believe that the debtors were insolvent. We may assume, therefore, that the confession of judgment is unimpeachable. It was held by the defendants without entry of record until April 30, 1869, when judgment was entered upon it in the Supreme Court, as the bill avers, at the request of the defendants, and an execution was issued and levied upon the debtors' stock of goods, greater in value than the amount of the debt. Thus the defendants obtained a lien upon the goods, a full security for the debt due them. On the next day (May 1), at the request of the debtors, they paid to the banks with which the bonds loaned had been pledged the sums for which they were held, and took up the collaterals and notes. Thus a payment was effected on the judgment of the difference between the amount of the notes and the collaterals. Then Dibblee & Co. paid $1,900 in cash, and transferred bills receivable and accounts owed by them, amounting to $47,839.52, in full satisfaction of the balance of the judgment, and the levy of the execution was released. This transaction the circuit court held to be fraudulent, as in conflict with the Bankrupt Act, and decreed that the assignee of the bankrupts should recover from the defendants the amount received by them from the securities transferred on the 18th of May, together with the $1,900 paid to them in cash, and the value of the securities redeemed by them from the banks, above the sums which they paid for the redemption. It is from this part of the decree that the defendants below have appealed, and they now contend the payment, and the trans373*] fer of securities made to them by Dibblee & Co. on the 1st of May was not a preference in fraud of the Bankrupt Act, or any Preference at all. Whether it was or not, obviously, deDends upon the answer which must be given the question, "Was it a transfer of property for a sufficient present consideration, or was it a transfer to satisfy or secure an ante Be cedent debt or liability?" The confession of judgment given on the 25th of February was, as we have seen, a security to the defendants for a loan then made, not a security for a pre-existing debt. Giving and receiving that paper, therefore, cannot be considered a preference of creditors. The defendants had a clear right to take and to hold it, and the borrower had a clear right to give it. sides, as already remarked, it does not appear from the evidence that at that time Dibblee & Co. were insolvent. It must, therefore, be concluded, as it was by the court below, that there was nothing in that transaction which was fraudulent in fact, or fraudulent as against the Bankrupt Law. The confession was not itself a judgment, but it authorized the defendants to cause a judgment to be entered without the knowledge of the debtors, and even against their protest. Was, then, the subsequent entry of the judgment, and the issuing of an execution thereon, followed by a levy on the debtor's goods, obtaining an unlawful preference? The court below thought it was, but such is not our opinion. It must be conceded that on the 30th day of April, when the defendants caused the judgment to be entered, the execution to issue, and the levy to be made, they knew that Dibblee & Co. were insolvent; but that knowledge is not of itself sufficient to invalidate the judgment and execution. A creditor may pursue his insolvent debtor to judgment and execution, with full knowledge of the insolvency, notwithstanding the provisions of the Bankrupt Act, provided the debtor does nothing to aid the pursuit. If there be no collusion between the debtor and the creditor, the ordinary remedies of the law are open to the latter. In Wilson v. Bk., 17 Wall., 473, 21 L. ed., 723, it was decided by this court that when a debt is due, and the debtor is without [*374 just defense to the action, "Something more than passive non-resistance of an insolvent debtor to regular judical proceedings in which a judgment and levy on his property are obtained, is necessary to show a preference of a creditor, or a purpose to defeat or delay the operation of the Bankrupt Act, and that though the judgment creditor in such a case may know the insolvent condition of the debtor, his levy and seizure are not void under the circumstances, nor any violation of the Bankrupt Law." It was also decided that a "Lien thus obtained by the creditor will not be displaced by subsequent proceedings in bankruptcy against the debtor, though obtained within four months from the filing of the petition." It is true that in Wilson v. Bk., the judgment under review and the execution thereon were obtained in an ordinary suit at law, to which the debtor made no defense, but allowed the judgment to be taken by default. In this case the judgment was entered by the creditor in virtue of what is called a confession previously made, equivalent to a warrant of attorney to confess a judgment. But it is impossible that can make any difference in its validity. confession having been lawful when it was given the subsequent use of it by the creditors according to its legal effect, a use to which the debtors were not parties and of which they had no knowledge, cannot be illegal. If it is, it must be because it is made so by the 35th section of 88 U. S. The the Bankrupt Act. But a careful examination of that section will show that the mere entry of a judgment against an insolvent debtor, by virtue of a warrant of attorney, though entered just before the proceedings in bankruptcy are commenced, and when the creditor knows his debtor is insolvent, and though followed by an execution, is not such a preference as the statute avoids. Something more is needed to make it an unlawful procurement of a prefer ence. it was given, causes the judgment to be entered of record, how can it be said the debtor procures the entry at the time it is made? It is true the judgment is entered in virtue of his authority, an authority given when the confession was signed. That may have been years before, or if not, it may have been when the debtor was perfectly solvent. But no consent is given *when the entry is made, where[*376 the confession becomes an actual judgment, and when the preference, if it be a preference, is obtained. The debtor has nothing to do with the entry. As to that he is entirely passive. Ordinarily, he knows nothing of it, and he could not prevent it if he would. It is impossible, therefore, to maintain that such a judg ment is obtained by him when his confession is placed on record. Such an assertion, if made, must rest on a mere fiction. And so it has been decided by the Supreme Court of Pennsylvania. Sleek v. Turner, Legal Intel. Sept. 25, 1874. More then this, as we have seen, in order to make a judgment and execution against an insolvent debtor a preference fraudulent under the law, the debtor must have procured them with a view or intent to give a preference, and that intent must have existed when the judgment was entered. But how can a debtor be said to intend a wrongful preference at the time a judgment is obtained against him, when he knows nothing of the judgment? That years before he may have contemplated the possibility that thereafter a Now, to bring the case of a judgment and ex- judgment might be obtained against him; that ecution, or attachment, within this Act, sever-long before he may have given a warrant of alal things must concur: The words of the 35th section are as follows: "If any person, being insolvent or in contemplation of insolvency within four months before the filing of a petition by or against him, with a view to give a preference to any creditor, or person having a claim against him, or who is under any liability for him, procures any part of his property to be attached, sequestered or seized on execution, or makes any pay ment, pledge, assignment, transfer or conveyance of any part of his property, either directly or indirectly, absolutely or conditionally, the person receiving such payment, pledge or assignment, transfer or conveyance, or to be benefited thereby, or by such attachment, having reasonable cause to believe such person is insolvent, and that such attachment, payment, pledge, assignment or conveyance is made in fraud of the provisions of this Act, the same shall be void, and the assignee may recover the property, or the value of it from the person so receiving or so to be benefited." 375* *1. The debtor must have procured the judgment and attachment of his property. 2. He must have procured them within four months next prior to the filing of the petition in bankruptcy by or against him. torney to confess a judgment, or by a written confession, as in this case, have put it in the power to his creditor to cause a judgment to be entered without his knowledge or subsequent assent, is wholly impertinent to the inquiry whether he had in view or intended an unlaw3. He must have been insolvent or contem ful preference at a later time, at the time plating insolvency, at the time; and he must when the creditor sees fit to cause the judg have procured the judgment and execution ment to be entered. For, we repeat, it is a with a view to give a preference to the judg-fraudulent intent existing in the mind of the ment creditor. debtor at this later time which the Act of Dibblee & Co. on the 30th of April, 1869, the issue of the *execution thereon, and the [*377 levy upon the debtors' stock, were not fraudulent; that they were not a procurement by the debtor of a seizure of his property with a view on his part to give a preference to the defendants, within the meaning of the 35th section. 4. The creditor must have had reasonable Congress has in view. The preference must be cause to believe that the debtor was insolvent, accompanied by a fraudulent intent, and it is and that the judgment and execution were that intent that taints the transaction. Withgiven in fraud of the provisions of the Bank-out it the judgment and execution are not rupt Act. void. This construction of the Act of Congress We say these things must concur. And they must concur not only in fact, but in time which appears to us to be the only one of also. The 'words of the 35th section admit of which it is susceptible, necessitates the conno other construction. The debtor must be inclusion that the entry of the judgment against solvent, or contemplating insolvency, when the alleged preference is given. And he must then have in view giving a preference. He must procure the attachment or the entry of the judgment, the execution and the levy, with a present intention to prefer the creditor. The unlawful view to a preference must co-exist with the procurement. It is not enough that it precedes the entry of the judgment and the levy of the execution, or that it follows. And the creditor, when he obtains the judgment and execution, must have reasonable cause to be lieve not only that the debtor is insolvent, but that the attachment is made (made or caused by the debtor) in fraud of the provisions of the Act. In fine, there must be guilty collu sion, to constitute the fraudulent preference condemned by the statute. Now, in a case where a creditor, holding a confession of judgment perfectly lawful when It has been suggested in opposition to the view we have taken, that if a creditor may hold a confession of judgment by his debtor, or a warrant of attorney to confess a judgment, without causing it to be entered of record until the insolvency of the debtor appears, the debtor may thereby be able to maintain a false credit. If this be admitted, it is not perceived that it has any legitimate bearing upon the question before us. The Bankrupt Act was not aimed against false credits. It did not prohibit holding judgment bonds and notes without entering judgment thereon until the debtors be |