Delaware gazette and state journal., 1896-03-26
AN IMPORTANT DECISION.
Full Text of an Interesting Decree Handed
Down by Judge Wales.

40 VI unusudi III poi tahSo oHH 10 bi'Sh
here in full:
"In the circuit court OF the Unitad
States for the dietriet of Delaware.
Marcelus E. Wheeler VS.. Walton &
Whann Co. No. 157 in equity.
"wales, D. ]. BY decree of this
court, made on June 9th, 1894, tho de-
fendant company was declared to be
insolyent, and on the sameday receivers
were appointed to take charge of their
affairs. The receivers are now ready
to make pro rata distribution, among
the creditors, of so much of the assets
Of the company as have been collected
up to the present time, and rs are app
plicable for that purpose; but before
making such distribution thry ask the
instruction of the Court on exceptions
which have been filed to the claims of
such creditors as hold collateral securi-
ties for the payment of the debts due to
them. The case presented for the spe-
cial consideration of the Court is that
of National Bank of Wilmington and
Brandywine, which at the time of the
appointment of the receivers, was O
creditor to very large amount for
which it held collateral security con-
sisting chiefly OF bills receivable. By
far the greater portion of these securities
have been paid and the moneys received
from them have been credited to the
company. on the account between it
and the bank, leaving balance now
due to the bank of 50, 012. 81.
The securities still remaining in tho
hands of the bank have no market
value, and have not been appraised !;
their face value is equal to the amount
on which the bank is claiming a pro
rata dividend. The receivers object
TO the payment of the banks claim
until il shall have exhausted its rene
dies against the collateral securities,
which it still holds, or until it shall
surrender these securities to the re-
ceivors to be added to the general fund
for distribution among all the creditors
and without giving any undue adyan-
tage to one class of creditors over
another. Tho bank promises TO use all
diligence in collecting the unpaid se-
curities and in applying the proceeds
to the payment of its debt, and, after
that has been done, to surrender the
securities which may be left to the re-
ceivers.
. 1t is general rule that an assignee
for thelbenefit of creditors holds the
property assigned subject TO the same
equities as the debtor held it, and the
same rule applies to receivers appointed
by court of equity to take charge of
an insolvent estate and distribute its
assets. To determine tho question
raised by the exceptions it is only me-
cessary to ascertain the rights of a
creditor occupying the position of the
bank; ana this question must be de-
cided according to the rules and prac-
tice which have been settled and re-
cognized by courts Of equity without
reference to statutory requirements.
1T is settled principle of equity
that creditor holding colateralH ia not
bound to apply them before enforcing
his direct remedies against the debtor,
Lewis VS.. the United States, 92 U.
s. 623; Kellock's Case, 3 ch. App. T69
This equitable rule is the natural result
of the contract entered into between a
lender and borrower of money by
which the parties agree that the creditor
shall have, in addition to the personal
obligation of the debtor, the possess
sion of certain specific property which
is to be applied to tho repayment of the
debt or any part thereof which the
debtor is unable to pay. Thenceforth
the debtor has no control over the col
laterals which he has deposited with
the creditor, until the debt has been
| fully satisfied; and in the meantime,
when the debt has matured, the credi-
tor can take proceedings for its recov-
eN either against the collaterals or
against the debtor. 1t may happen
| that the debtor may be able to pay a
part of the debt in which case the
creditor may apply SO much OF the col
lad hnl. kI.r,
| creditor may dispose Of all the colat-
| erals and collect the balance of the debt
| from the debtor. Tho law is clearly
stated in Jones on Pledges, soc. $50.
sin short, in the case of pledge, Just
as in the case of Il mortgage, creditor
may use any remedy no has against the
debtor or his property for the collection
of his principal debt, without destroy
ing or impairing his security for the
debt. until it is actually paid. A
| creditor is entitled to hold his securi-
| ties, whatever they may be, until he
gets his pay. The securities belong to
him and ho may enforce the debt
without surrendering them. " # =
SIT is off the every nature of collateral
security that it may be resorted to for
a satisfaction of the principal debt, il
| its payment shall not be otherwise OBJ
| tained."
1t is mistake, therefore, to sup
pose that the bank will not bo entitled
| to dividend until it has exhausted
the securities or surrendered them.
| The Goth section of the Bankrupt act
of 1867, (since repeatedly, required the
creditor to sell, release or deliver up
his collaterals before he could prove
any part of his debt, but that require
ment was never applicable outside of
that law. Bispham's Equity. sec. 3i3
"Under an assignment for the benefit
of creditors, which is virtually the case
now before the court, creditor hold
ing notes Of third persons as collateral
security, by collecting those notes be-
fore dividend is made must credit
the amount collected upon the princi-
pal debt, and take dividend upon the
remainder only of the debt, he cannot
collect the cullaterals and then claim a
| dividend upon the principal debt as ii
was at the time Of the assignment
(Jones on Pledges, sec. 5S7), although
some of the authorities go to that ex-
tent, with the provisO, that in no event
will tho creditor be allowed to receive
moro than his original debt. People
vs.. Remington, 12l N. Y. 1928. There
] would be no more inequality of distri-
button among creditors by allowing the
claim of the bank, than in applying
the proceeds of the sale of tho mort
gagged real estate of an insolvent to the
payment of the debt due to the mort
gagee in either case the creditor would
only receive the fruits of his diligence
and prudence in taking security for
his debt. The opinion of Chancellor
A..t.. Il.slI i ...,l
Co., cited by the receivers counsel.
| has M dircct annlicatin To tho nrern,n /