Partridge , 96 Me. 52 ( 1901 )

Emery, J.

January 0, 1898, Littlefield, the insolvent debtor, was indebted to Partridge, the claimant, and on that day undertook to secure that prior indebtedness by giving him promissory notes and areal estate mortgage of that date. At the time of this transaction Littlefield was in fact insolvent and Partridge had reasonable cause to believe that he was insolvent and was contemplating insolvency. No proceedings in insolvency, however, were begun by or against Littlefield until June 8, 1898, more than four months after the mortgage was given.

Had the mortgage been recorded more than three months preceding the commencement of' the insolvency proceedings, it might have escaped the effect of those proceedings, but it was not recorded till May 2, 1898, and within the three months named in § 38 of the insolvency statute (It. S., c. 70). The mortgage was, therefore, invalidated by the insolvency proceedings begun within three months after its record, and it was so adjudged upon that ground in an equity ease by the assignee in insolvency against Partridge. (94 Maine, 140). It was declared to be of no forc*e as against the: assignee and the creditors, and was ordered to be discharged and can-celled. This does not appear to have been formally done, but there is no suggestion that he has been asked to do it, or lias bad any actxuil notice of the decree. At any rate, the mortgage: is of no force as against the: assignee and creditors, and in view of the: adjudication of the* court may be: disregarded by them.

Tt having been thus adjudged that his mortgage: was invalid and of no avail and should be: cancelled, Partridge: undertook to prove his debt against the: insolvent estate of Littlefield as an unsecured claim. This eras opposed by the assignee under § 29 of the insolvency statute (B. ¡8., c. 70) whic*li declares that “a person who has accepted any preferene*e knowing that the debtor was insolvent or in contemplation of insolvency, shall not prove the debt on which the preference was given nor receive any dividend thereon, until he surrenders to the assignee all property, money, benefit or advantage received by him under such preference.”

It is to be noted that by the statute a creditor who has accepted a preference is not absolutely debarred from proving his claim, but is only delayed until he surrenders “ all the property, money, benefit or advantage received by him under such preference.” He seems to have an option, to keep what he may have received from the debtor and forego any claim upon the estate, or to return all that he so received and make a claim against the estate. The statute does not seem to be penal, but remedial only, to secure equality among all creditors seeking to prove their claims. Morey v. Milliken, 86 Maine, at page 476.

Partridge in fact had no preference over other creditors. He has no “property, mone3r, benefit or advantage” received under any preference. He has nothing to surrender. Ity his omission to seasonally record his mortgage he surrendered all that he obtained under it. It is in fact invalid and has been so adjudged. It no longer incumbers the insolvent estate, or hinders its division among creditors. Though a preference was intended, none was effected. As to the assignee, it was as though a mortgage was intended to be executed but was not executed. An intent alone does not constitute a preference.

The assignee urges, however, that there was once a preference, and that it was destroyed only by his proceeding against it in equity to have it cancelled. He inquires whether Partridge could have proved his claim, if there had been no decree' of the court cancelling the mortgage? The answer is, that the court did not destro3r a once valid mortgage. It merely held that the mortgage never became effective as against the assignee. The mortgage never was valid nor a pi’eference as against the assignee. The assignee and purchasers from the assignee could have ignored it.

The assignee again urges that Partridge cannot prove his claim until he obeys the decree of the court ordering a cancellation of the mortgage, — that he has not surrendered his preference until he makes such cancellation. It is not the cancellation that- destroys the mortgage. The mortgage was dead as against the assignee before his suit in equity was begun. Tin* cancellation will be simply its removal from sight. Tf the assignee or any purchaser from him so desires, he can enforce the cancellation by proceedings for contempt.

Still again it is urged that the conduct of Partridge in taking the mortgage compelled the assignee to expend funds of the estate in litigation to compel- a cancellation, and thus reduce the dividends to the unsecured creditors. Waiving the question whether the equity suit was necessary, it is enough to say that, in view of the law, the costs recovered are an expiation of the sin of defending against proceedings at law or in equity.

The decision of the presiding justice that Partridge could prove his claim was correct.

Mcceptions o verruled.