Court Opinion

ID: 7934912
Source: CourtListenerOpinion
Date Created: 2022-09-08 23:08:28.68244+00
Date Added: 2024-06-11T16:33:30.125782
License: Public Domain

Morse, J.,
(dissenting). I do .not think this case is settled by Southern Mich. Nat'l Bank v. Byles, 67 Mich. 296. In that case the money which had been received by the bank came from indorsers. The notes which were the basis of the claim of the bank against the insolvent estate of Kellogg, Sawyer & Co. were indorsed by Chickering & Kyser. Before the dividend was declared against the estate of Kellogg, Sawyer & Co., the bank received some five hundred and odd dollars from the indorsers. It was held that nevertheless the bank was entitled to a dividend upon its full claim without deducting this payment against the estate of Kellogg, Sawyer & Co. It was so held for the express reason that the other creditors had no right, legal or equitable, to the moneys received from these indorsers. This case is different. The prop*616erty from which the money was received in this case belonged to the estate of the assignor, and the other creditors had a lien upon it subject only to the prior lien or security of the Third National Bank. I cannot indorse the argument in support of the equity of the rule laid down in the opinio^ of Mr. Justice Cahill. Its equity is not apparent to me. On the contrary, the contention of the defendant seems to be the most equitable. Take an illustration. A. fails, and makes a general assignment for the 'benefit of his creditors. His assets are $11,000. His liabilities are $15,000. He owes B. $10,000, C. $5,000. B. has security upon some of the assigned property. Such security is worth $5,000. B. proves his claim for the full amount, $10,000. Before a dividend is declared, B. converts his security into money, and receives $5,000 in cash upon his debt. This $5,000 being withdrawn, leaves to be divided $6,000. B.’s debt being now reduced to $5,000, and unsecured, the same as C.’s, it would appear equitable that each should receive $3,000. Then B. would receive the amount of his security, $5,000, and 50 per cent, upon the balance, $3,000, total $8,000, and C. would get 50 per cent., $3,000. But under the rule established by Mr. Justice Cahill, B. would get the amount of his security, $5,000, and a dividend upon the balance as upon his claim of $10,000 to C.’s $5,000, to wit, B. $4,000, C. $2,000, — making a total to B. of $9,000 and to O. of $2,000. By this method of dealing, B. not only gets the full advantage of his security, but receives two dollars to C.’s one upon their unsecured debts. Where is the equity of such a division? I am not able to see it. When B. is given the full amount of his security, his advantage over the unsecured creditor ought to end, and there can be no equity in any other holding.
If the rule as expressed by Mr. Justice Cahill is to *617prevail in matters of general assignment for the benefit of creditors, it will also by analogy govern claims against the estates of deceased insolvents in the probate courts. The secured creditor can withdraw the property upon which he has a mortgage, or other lien by way of security, from the body of the estate, and yet prove his claim for the full amount against the estate, and take his dividend upon it. Such has not been the practice of the probate courts in this State to my knowledge. And it would seem that the general policy of our laws is not favorable to the rule. How. Stat. § 8824, in relation to the proceedings to be taken in the case of fraudulent and insolvent debtors, provides that a petitioning creditor who holds a mortgage or other security—
“Upon any real or personal estate of the debtor * * * shall not become a petitioner in respect to the debt so secured, unless he shall add to his signature to the petition a declaration in writing that he relinquishes to the assignees who shall be appointed * * * such mortgage or other security for the benefit of all the creditors of such debtor, which declaration shall operate as an assignment/-’ etc.
It is true that the Pennsylvania cases cited by Justice Cahill go to the full extent of the doctrine announced by him, but an examination of other authorities show that in some other states the rule is as I contend. See Burrill, Assignm. (5th ed.) § 440, pp. 701-703; Wurtz v. Hart, 13 Iowa, 515; Amory v. Francis, 16 Mass. 308; Bell v. Fleming’s Ex’ors, 12 N. J. Eq. 490. Indiana, Texas, New Hampshire, and other states, recognizing the justice of the rule that the creditor must when he has received his security apply it as a payment on his debt, and only collect a dividend pro rata with the other creditors from the estate upon the balance, have adopted statutes in harmony with the holding in Iowa and Mass*618achusetts. As is well said by Chief Justice Parker in Amory v. Francis, 16 Mass. 310, any other holding than the one for which I contend would be a gross violation of the equality intended to be produced by the bankrupt laws,—
“And the creditor holding the pledge would in fact-have a greater security than that pledge was intended to give him. For originally it would have been security only for the proportion of the debt equal to its value; whereas by proving -the whole debt, and holding the pledge for the balance, it becomes security for as much more than its value as is the dividend, which may be received upon, the whole debt.” See, also, Farnum v. Boutelle, 13 Metc. 159.
It must be remembered in this case that the bank claims to own the three vessels by virtue of its mortgages; that they have been sold, and the sale confirmed. The-receiver paid to the bank the sum of $6,989.13, which has reduced its debt by that amount. Now upon rvhat principle of equity is the bank entitled to a dividend upon this $6,989.13 from the balance of the property, upon which it never had any security, and upon a sum which the insolvent is not owing to the bank?
I think the circuit judge was in error in his order, and that the bank is entitled to receive a dividend only upon $22,178.64 less $6,989.13, to wit, the sum of $15,189.51.