Case 9. Preference in Bankruptcy

Titius, burdened with an enormous debt, spoke of his most wretched condition with Caius, his friend and creditor, and received from him the advice that he should surrender his goods as soon as possible, lest the condition of the creditors become worse. At the same time, however, Caius asked him to repay to him before the surrender what he had borrowed from him. Titius did this and a little afterward became bankrupt. Moreover, by this surrender the remaining creditors received scarcely a third part of what was theirs. Conscious of this, and having suffered anxieties of conscience on that account, Caius approached a theologian who was his friend in order to lay them aside, and disclosed to him that he had in fact received from Titius what was his in full, to the prejudice of the other creditors, but with these special circumstances: namely, that the other creditors had lent this man money at interest, whereas he himself had lent it gratuitously out of charity; that they were very rich, whereas he himself was poor in comparison with them; and, besides, that he was the first who had sought restitution. Hence it is asked:

1. In what order is restitution to be made?

2. Does a surrender of goods excuse from complete restitution, and under what conditions?

3. What is to be said of the case?

1. In what order must restitution be made?

If the debtor is solvent, the order of paying his debts is immaterial. If he is not solvent, he will be adjudged a bankrupt, and his property will be distributed ratably among his creditors, with the exception of some, to whom the law gives preference. English law gives such a preference to rates and taxes, and to certain salaries and wages.¹

1 Manual of Moral Theology, vol. i, p. 429.

2. Does bankruptcy excuse from full payment of one’s debts, and on what conditions?

The answer to this question will depend upon the law of the country. According to English law, a bankrupt who has conformed in all things to the law, and has paid at least ten shillings in the pound of his debts, may be granted an absolute discharge, the effect of which is to make him a clear man again. Large discretion is given to the judge to defer, or to grant on condition, or to grant absolutely, a bankrupt’s discharge.²

2 Stephen, Commentaries on the Laws of England, vol. ii, p. 260. Manual of Moral Theology, vol. i, p. 451.

3. The case. We have to do with Caius primarily. The payment of his debt in full, when it was morally certain that Titius was insolvent, would in all probability be regarded in English law as a fraudulent preference, and if it came to the knowledge of the official receiver or trustee in bankruptcy, the money would have to be refunded. However, no moral fault would seem to attach to Caius. His debt was due, as we suppose; he had a right to ask for payment, and having got it, he may keep it, unless compelled by law to refund it. Titius was not justified in paying Caius in full under the circumstances, according to strict law. He paid not to avoid pressure, but in order that a friend might not suffer from his bankruptcy. In the eyes of the law, he would, in all probability, be held guilty of fraudulent preference, and this would prevent him getting his discharge.³

3 Manual of Moral Theology, vol. i, p. 434.