Court Opinion

ID: 6532275
Source: CourtListenerOpinion
Date Created: 2022-07-19 20:20:28.236931+00
Date Added: 2024-06-11T15:54:51.839210
License: Public Domain

BUNNELL,, District Judge.
The position taken by the petitioner is that the decisions of the Supreme Court of the United States in Merrill v. National Bank of Jacksonville, 173 U. S. 131, 19 Sup. Ct. 360, 43 L. Ed. 640, and Aldrich v. Chemical National Bank, 176 U. S. 618, 20 Sup. Ct. 498, 44 L. Ed. 611, are controlling in this case, and that the sum of $27,248.76 claimed to be due on January 30, 1914, was ascertained in accordance with the methods of calculation employed in those cases. In Merrill v. National Bank of Jacksonville, supra, the rule is established that:
“A secured creditor of a national bank may prove and receive dividends upon tbe face of Ms claim as it stood at the time of the declaration of insolvency, without crediting either his collaterals, or collections made therefrom after such declaration, subject always to the proviso that dividends must cease when, from them and from collaterals realized, the claim has been paid in full."
By this rule a secured creditor of an insolvent national bank is assured that if the dividends declared, together with the proceeds of any security held, are equal to the amount of his claim, that is, principal and interest, he will be paid in full; and it may be permissible to add that the unsecured creditor is by the same rule assured that the secured creditor will not be permitted to take more than is due him. In the administration of estates under receivership, the District Court, while recognizing the ruling of the Supreme Court *25as the law, have endeavored to determine each case with due regard to the equities thereof, and not to apply the rule of the Supreme Court as a solution for every problem similar, •but not identical. In Hitner v. Diamond State Steel Co. (C. C.) 176 Fed. 390, the court gives the following as the first question raised for decision:
“Whether one having a pecuniary claim ascertained in amount against an insolvent corporation in the hands of receivers, and holding collateral security for its payment, has a right in equity to receive out of its general assets pro rata dividends calculated on the basis of the amount of the corporate indebtedness to him existing at the time of the declaration of insolvency, including interest thereon, if any, to that time, without regard to such collateral security or any payment or payments he may have received on account of his claim since that time, provided, that he shall not receive and retain from any or all sources more than the real amount of his claim, with interest thereon until paid, aside from any costs, charges and expenses incurred by him in the enforcement of or realization upon such collateral security.”
And, commenting thereon, it was said:
“Whatever might be the inclination of this court on the subject were it res integra, the first of these two questions [the question above] has been set at rest by the Supreme Court in Merrill v. National Bank of Jacksonville, 173 U. S. 131, 19 Sup. Ct. 369, 43 L. Ed. 640; the court there fully recognizing and approving the following as the chancery rule: ‘The creditor can prove for, and receive dividends upon, the full amount of his claim, regardless of any sums received from his collateral after the transfer of the assets from the debtor in insolvency, provided that he shall not receive more than the full amount due him.’ ”
As distinguished from the chancery rule, the Supreme Court, in Sexton v. Dreyfus, 219 U. S. 339, 31 Sup. Ct. 256, 55 L. Ed. 244, lays down the bankruptcy rule as follows:
“Under the Bankruptcy Act of 1898, a secured creditor selling his securities after the filing of the petition must apply the proceeds, other than interest and dividends-accrued since the date of the petition, first to the liquidation of the debt with interest to the date of the petition; he cannot first apply such proceeds to interest accrued since the petition.
“A secured creditor of a bankrupt can apply interest and dividends accruing on the securities after the date of the petition to interest on the debt accruing after such date.”
The two rules are thus established.
*26In Westinghouse Elec. & Mfg. Co. v. Idaho Ry., L. & P. Co. (D. C.) 228 Fed. 972, the court holds that
1 Since “Rev. Codes Idaho, § 4520, provides that there can be but . one action for the recovery of any debt or the enforcement of any right secured by mortgage; which action in case of mortgage is defined as a foreclosure suit, in which, after sale of the property, but not before, the plaintiff may have judgment, which he may satisfy by execution, but only for the amount of the debt remaining unpaid, * * * in view of such statutory provisions, on distribution by a federal court of equity in Idaho of the assets of an insolvent corporation, the trustee of a mortgage of property in the state is entitled to share as a creditor in the unmortgaged assets in the hands of a receiver on the basis of the amount of his deficiency judgment only.”
The same court also cites Commercial & Savings Bank v. Robert H. Jenks Lumber Co. (C. C.) 194 Fed. 732, to the effect that neither the National Bankruptcy Act (U. S. Comp. St. §§ 9585-9656) nor the state insolvency law is binding upon a federal court administering an estate through a receivership in the general course of equity. It is worthy of note, however, that in 194 Fed. 732, supra, the court decides that:
“Where an insolvent corporation deposited collaterals with claimant bank as security for its entire indebtedness, the bank on administration of the corporation’s estate in equity was entitled to prove its claim for the full amount of its debt and to receive dividends up to the balance due after crediting the proceeds of the sale of the collaterals.”
And in the AVestinghouse Case, supra, in commenting upon the rule laid down by the Supreme Court in national bank cases, the court says:
“And upon principle possibly no substantial reason can be given why, if controlling in national bank eases, the rule should not be extended to other insolvent estates, and to mortgage claims as well, provided, of course, there are no opposing statutory provisions.”
Any confusion now existing with respect to the Supreme Court cases above cited is not on account of what is therein stated, but on account of a tendency to extend the scope of the rule announced.. The rule was made applicable to “a secured creditor of an insolvent national bank.” In Merrill v. National Bank of Jacksonville two kinds of indebtedness are mentioned: First, the indebtedness upon the unsecured drafts for $6,010.47,. which claim was proved and upon which *27' there was no controversy; second, the secured claim of $10.-093.34 — and it was with reference to a secured claim that the Supreme Court made its ruling. It is nowhere stated that, because the sum of $10,093.34 was secured, there was thereby imparted to the whole indebtedness the status of being secured. In Aldrich v. Chemical National Bank the claim under consideration was a secured claim in the sum of $305,450, secured first by a certificate of deposit for the sum of $300,000, together with other collateral security in the shape of notes presumably bearing the indorsement of the bank giving them for security. If the debtor bank transfers to the creditor bank collateral security consisting of certificates of deposit, notes, and bonds regularly indorsed, the face value of which is expressed thereon in words and figures in an amount equal to or more than the indebtedness and interest to accrue, it must be said that the creditor bank is a secured creditor. The creditor bank presumably investigates the security tendered and accepts the same only after having satisfied itself that it is sufficient and that the debtor bank has in good faith placed upon it by its certificate or endorsement the stamp of a bona fide transaction. Were it otherwise, the relation would not and should not exist. Webster defines “secure” to mean to put beyond hazard of losing, or of not receiving. And so I take it the Supreme Court was looking to the good faith of the original transaction, and giving to it the force and effect to which it was entitled. In the Chemical National Bank Case the equities were in favor of the rule. Necessarily there is a vast difference between a secured creditor and a creditor with some security. Certainly it was never intended that a little security should make the account stand forth forever as secured in toto. To say that $10,000 of collateral security fixes the status of the creditor to whom there is due $50,000 as that of a secured creditor is as contrary to equity and right as it is to say that by a payment on account the debtor is entitled to have the bill rendered marked “Paid.” If a banking institution is satisfied with having in its possession by way of security, speculative stocks, or any other kind of prima facie undetermined security, it should not be allowed in the administration of an insolvent estate to rise to the dignity of being classed as a secured creditor in an amount greater than *28the value of its security. The purpose is to accomplish an equitable ratable distribution among all the creditors.
Were it not for the contract entered into by the petitioner and the receiver July 13, 1912, I should determine the rights of the petitioner in accordance with the views above expressed. Such a determination would safeguard the interests of the unsecured creditors, reward the petitioner for its diligence, and would not do violence to any equitable ruling announced by the Supreme Court. The following determination would then be made: The Washington-Alaska Bank owed the Dexter Horton National Bank on the 4th day of January, 1911, the sum of $129,465.62. The 96 shares of Gold Bar Lumber Company stock of uncertain value, held as a pledge, were sold by order of court in the state of Washington, and the proceeds of such sale on the 30th day of January, 1914, amounted to $99,954.95. The delay in realizing on this pledge was not the fault of the petitioner, and therefore it is necessary to ascertain what sum of money at 6 per cent, interest per annum on January 4, 1911, would amount to $99,954.95 on January 30, 1914. This sum is $84,-421.41. The petitioner would therefore be entitled to participate in dividends, the same as other creditors, calculated on the sum of $45,044.21. Dividends of 16% per cent, each were declared January 9, April 8, and November 7, 1911, respectively, and were not paid to petitioner. Calculating interest thereon from the date declared to August 6, 1912, on which date the petitioner was paid the sum of $25,000, it is found that by the payment of $25,000 the petitioner was overpaid to the extent of $833.75. Future dividends would be calculated on the sum of $45,044.21, but from the first dividend or dividends declared the sum of $833.75 would be deducted.
I have thus commented upon the Supreme Court rule, and illustrated its application to the claim of the Dexter Horton Bank, based upon the security of the Gold Bar stock as originally held, for the reason that the agreement between the petitioner and the receiver on July 13, 1912, will determine the matter under consideration in favor of the petitioner, and I do not wish to be understood as holding that a creditor who takes stocks of uncertain and undetermined value as security shall in the administration of an insolvent es*29tate be permitted, for that reason alone, to be classed as a secured creditor.
The agreed statement of facts shows that the value of the Gold Bar stock must have been considered by both the petitioner and the receiver to have been far in excess of the claim of the petitioner against the Washington-Alaska Bank. On July 8, 1912, the attorney for the receiver sent the following wire to the judge of this court:
“Honorable Peter D. Overfield, Iditarod, Alaska. Dexter Horton to Heilig — Did receiver accept terms our telegram June 22d. If not we will not delay further. That appears to be threat to dispose stock. Wouldn’t it be better pay twenty-five thousand they to hold stock December first. Might then arrange further time.”
Judge Overfield replied:
“Receiver authorized if you think best to pay twenty-five thousand Dexter Horton Bank provided Gold Bar stock retained December first.”
The agreement set forth in paragraph 10 of the agree'd statement of facts was thereupon entered into by the Dexter Horton Bank and the receiver. In the first place, it must be admitted that the judge of the court could not delegate any judicial function to be by him performed to the attorney for the receiver. It was not a question of what the attorney might think, but what the court upon consideration should order. In the second place, although the contract entered into was beyond the scope of any authority granted to the receiver, yet thereafter the receiver’s report shewing the payment of $25,000 was filed and duly approved by the! court. The contract was at least ratified by implication. Later, when the Dexter Horton Bank sought to foreclose its lien on the Gold Bar stock, the receiver was ordered to go to Seattle and resist such action. Necessarily the validity of the contract was a matter for determination in that proceeding. Judgment was given in favor of this petitioner, which judgment was, on appeal to the Supreme Court for the state of Washington, duly affirmed. See 86 Wash. 452, 150 Pac. 1176. It will be noticed that the contract entered into by the petitioner and the receiver brings the claim for $129,465.62 and the Gold Bar stock as collateral squarely within the Supreme Court rule. The records of this court show that the receiver was justified in believing that the *30Gold'Bar stock was worth at least twice the amount of the petitioner’s claim, and I have no doubt that the court, the receiver, and his attorney believed it was for the best interest of the estate to delay any threatened action to dispose of the Gold Bar stock.
Interest will be calculated at 6 per cent, per annum.
The claim on January 5, 1911, was for the sum of $129,-465.62, on which there was a payment of $25,000 August 6, 1912. The proceeds of the sale of the Gold Bar stock January 30, 1914, amounted to $99,954.95. There was therefore due the Dexter Horton Bank on that date the sum of $27,225.47. The petitioner asks for interest on this sum at 8 per cent, per annum from January 30, 1914. In my opinion the Washington courts have determined that the original contract was a contract under the laws of the state >of Washington. Interest will be allowed at 6 per cent, per annum.
In accordance with the views herein expressed, an order may be prepared and submitted.

<@=s>See same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

<&wkey;See same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes