Court Opinion

ID: 5449940
Source: CourtListenerOpinion
Date Created: 2022-01-08 18:19:50.53655+00
Date Added: 2024-06-11T08:32:20.806644
License: Public Domain

SHAW, J., concurring.
I concur in the opinion prepared by the late Mr. Justice.Temple while he was a member of this court. I add some observations which, to my mind, make the conclusion clearer and more satisfactory.
It is correctly stated in the opinions above referred to that in insolvency or bankruptcy proceedings a partnership creditor who has security upon the separate property of one member of the firm which has been transferred to a third person, or security upon the property of a third person, or security on property still owned by one of the firm, is not required to make a deduction, but may prove his whole claim against the partnership assets. In the case of security on the property of a third person, or upon property which has been transferred to a third person, the reason for this rule is, that unsecured partnership creditors suffer no loss by this method of marshaling the assets. For, if the third person were compelled to pay the secured debt to the value of the property mortgaged, he would be to that extent a creditor of the partnership, and could prove his claim and participate in the distribution. And before payment he would be in the position of a surety for the partnership, and as such could have the claim proved and allowed as a general claim under section 45 of the Insolvency Act. (Stats. 1895, p. 146.) The amount of the dividend in either case would therefore be the same as if the creditor had been allowed to prove for the whole claim in the first instance. In the case where the security is upon the property of one member of the firm, the reason is not precisely the same. In that event, if the debt has been paid by the member of the firm out of his separate estate, he will stand as a creditor of the firm to the amount thus advanced for its benefit, but he cannot be allowed to participate in the distribution of the firm assets, to the detriment of firm creditors, because he too is liable for those debts if the firm assets are not sufficient to pay them, and if, as here, there are no individual creditors, it would be merely traveling in a circle *357to allow bim to receive money from the firm assets in payment of such claim, and immediately take the money again to satisfy the unpaid debts of the firm. But if there had been no payment by the member who is surety, and the debt still stands to its full amount as the debt of the firm, it is settled by the authorities cited, and the reasons given in the opinion of Justice Temple, that he has the right to have it regarded to its full amount as a debt of the firm, as in law it still continues to be, and to have it go in without diminution as a part of the aggregate of claims upon which the dividend is to be computed and paid out of the firm assets, and that the creditor has the same right. And this rule stands upon even better grounds where the individual property given as security is exempt from the payment of debts in the insolvency proceedings, by reason of its being a homestead. Eor, as is said by Justice Temple, the giving of the security upon the homestead takes nothing from the assets available to the general creditors, either of the firm or of the individual member.
Upon reargument, respondent contends that it is not a correct construction of the Insolvency Law to declare that the failure to release the lien where it is upon exempt property takes nothing from the fund available to general creditors; that it is not true that in any event that property could not be reached by them. In support of this contention it is said that section 48 of the act requires the secured creditor, as a condition upon which he is allowed to prove for the whole amount of the debt, to “release or convey to the assignee” his claim, and that the proper construction of this provision is, that the creditor must release or convey to the assignee, not to the person whose property is given as security. Hence it is argued that the assignee, upon receiving the mortgage or security, may collect it and apply it to the payment of unsecured creditors, and it would follow that if the release or conveyance is not thus made, and the secured creditor proves for his whole debt, the assets for the general creditors will be diminished by the amount of the security. This contention is fully answered by the point established in the main opinion, that the secured creditor is required to make such release or conveyance only when the lien he holds is “upon the property of the debtor,” meaning, of course, the insolvent debtor, and *358that, with respect to the partnership assets in a partnership insolvency proceeding, the partnership is the debtor, and not individual members of the firm, and that, consequently, in this case the creditor did not have any lien or security upon the “propertytof the debtor” to release or convey.