Opinion ID: 569328
Heading Depth: 2
Heading Rank: 3

Heading: Provability--Principles of Equitable Receivership.

Text: 48 The salient fact here is that Citizens' rights and claim against North Central originated from the standby letters of credit issued by North Central long before its insolvency was declared. In Merrill, 19 S.Ct. at 366, the Supreme Court merely required payment of dividends ratably, that is to say, proportionately according to some uniform rule. The Court explained that the business of the Bank must stop when insolvency is declared and the only claims that can be recognized are those shown  'to have their origin in something done before the insolvency.'  Id. The Court recognized that, in the case of the secured creditor who recovers from the sale of collateral, dividend payments from the estate being administered should cease at the time his claim has been fully satisfied with collateral proceeds and dividend payments. That certain post-insolvency events may cause dividend payments to cease does not render the secured creditor's claim uncertain, not fixed, or not absolute as of the date of insolvency. 49 In American Surety Co., the Supreme Court recognized an equitable right and allowed a claimant to prove a claim it did not have on the date of insolvency. The Court allowed the surety company to rely on the equitable rule of subrogation in order to assert the amount of the depositor's claim against the bank. Unquestionably, ratable distribution requires that dividends be declared proportionately upon the amount of claims as they stand on the date of insolvency. 62 S.Ct. at 228. As to the provability of claims, the Court expressed no opinion. The Court explained that to be 'ratable,' the claims must be manifestly estimated as of the same point in time, and that date has been adjudged to be the date of insolvency. Id. The Court's further comments as to any limitation of the surety's participation are even more illustrative of its position that ratable distribution comport with intrinsic fairness, to wit: 50 On the other hand, if the surety's participation should be limited to the extent now urged by the receiver, the other creditors would profit solely because of fortuitous circumstances and without any relation to reasons of intrinsic fairness. 51 Id. at 228-29. 52 In the case at bar, Citizens' claim has its origin in the letters of credit issued by North Central prior to its insolvency. That liability thereunder was actually triggered by default on the Note which occurred shortly thereafter cannot be said to completely eradicate that contractual liability which originated from standby letters of credit pre-dating North Central's insolvency. 53 The Supreme Court in Merrill, explained its statements regarding ratable distribution as follows: 54 Whatever congress may be authorized to enact by reason of possessing the power to pass uniform laws on the subject of bankruptcies, it is very clear that it did not intend to impinge upon contracts existing between creditors and debtors, by anything prescribed in reference to the administration of the assets of insolvent national banks.... 55 The requirement of equality of distribution among creditors by the national banking act involves no invasion of prior contract rights of any such creditors, and ought not to be construed as having, or being intended to have, such a result. 56 19 S.Ct. at 366-37. 57 As it did in Liberty National Bank, the FDIC herein seeks too narrow an interpretation of ratable distribution of assets pursuant to section 194 of the National Bank Act. 806 F.2d at 965. Nothing in section 194, Merrill or American Surety Co., requires a holding under the instant facts that North Central's obligation to pay a fixed amount upon the occurrence of a specific event is obviated by its insolvency pre-dating the triggering event, i.e., default on the Note. The Tenth Circuit in Liberty National Bank, citing Merrill, observed that it is as much the purpose of the insolvency statutes to preserve the rights existing at the time of insolvency as to prevent new rights from arising thereafter. 14 806 F.2d at 965. 58 The existing Supreme Court case law does not address all types of claims and has not set forth any mechanistic provability test applicable to all types of negotiable instruments, including hybrids such as the standby letter of credit at issue in this case. Rather, the Court opened the door for the courts to apply equitable doctrines, apparently in harmony with the purpose of the National Bank Act scheme, that is, the liquidation of national banks for the benefit of creditors. 15 59 In Sisalcords Do Brazil, Ltd. v. Fiacao Brasileira De Sisal, S.A., 450 F.2d 419 (5th Cir.1971), as appellant represents, this court addressed the nature of letters of credit. We reviewed the dismissal of an action seeking to enforce a default judgment by means of attachment of an open letter of credit 16 issued by a Louisiana state bank. However, this Court's determination that the state bank did not have absolute liability under those letters of credit was predicated on Louisiana law of attachment and not the National Bank Act, to wit: Under Louisiana law the efficacy of an attachment is determined according to the facts existing at the date of issuance of the writ and, if defective, it is not cured by subsequent events. 450 F.2d at 422. Louisiana law of attachment does not allow resort to equitable doctrines. Therefore the court in Sisalcords concluded that the state bank's liability thereunder was not absolute. 60 The issue before the court in Sisalcords was whether the contractual obligation of the state bank under the letters of credit was a debt owing to the defendant by the garnishee within the meaning of the Louisiana law of attachment, 17 and therefore subject to attachment. Although the issue before this court in the present case is similar, the applicable law is the National Bank Act, which contemplates equitable doctrines fashioned by the courts. Other than providing us with some general definition and guidance as to the nature of letters of credit, Sisalcords is inapposite sub judice. 61 We can find no equitable reason in the present case why the time of appointment of the receiver should determine the provability of claims under the standby letters of credit. Liability on the standby letters of credit was absolute and certain in amount when this suit was filed against the receiver. By that time, the principals had defaulted on the primary loan obligations. The claims against the receiver were made in a timely manner, well before any distribution of assets of the receivership. We conclude that the claims of appellees under the standby letters of credit were provable in the face amount in the receivership.  '[T]here is no equitable reason why claims which are certain when presented and which are presented in time should have been certain at some arbitrary anterior period.'  18 62