Court Opinion

ID: 9442893
Source: CourtListenerOpinion
Date Created: 2023-08-03 19:02:50.421667+00
Date Added: 2024-06-11T17:29:16.290714
License: Public Domain

CLARK, Circuit Judge
(dissenting in part).
Under settled and obvious principles of law and justice a creditor, collecting first from the debtor’s guarantor and next from his collateral, must then reimburse that guarantor. These principles are not directly questioned here, but I think they can properly be given more scope as a basis for attack upon the necessary confusions of the case. Saying first that they should govern unless clearly eliminated by some means, presumably contract, I would add that the labored argument necessary even to raise the doubt, leaving two courts working at cross-purposes as to the ultimate disposition of an obvious windfall, is far from a demonstration of such clear elimination. Hence I would conclude that they should continue to operate to require a judgment in appellant’s favor. That is all I perhaps need to say. I shall, however, append a few sentences of clarification.
The opinion herewith relies on two grounds for denying this relief to appellant: the release by Prudence Company; and provision for the use of this fund to pay up other bonds not yet paid in full. As to the first, the opinion itself discloses the ambiguities of the release. Surely the possibility of reimbursement would seem in prospect more a claim against overpaid creditors than one against the original debtor; hence the provisions for the debtor’s release are not out of place in the context of the parties’ intent and do not show — certainly beyond peradventure —that such a claim was thus so haphazardly yielded. When to that is added the express provision, as if to avoid even the thought, that this release shall not vary the bondholders’ (creditors’) rights and specifically shall not increase them in the very way the order below proceeded to do, the inadequacy of the first ground seems to me clear. As to the second, that was not thought of below and is opposed here by appellee New Corporation; it appears to be suggested only, and somewhat tentatively, by the bondholder Eddy. It seems to depend entirely on the language in the Supplemental Trust Agreements providing in effect that any surplus in the collateral *936of one series shall be added to the collateral of any other series where insufficient. To me the idea that the promise of this guarantor — given in addition to the specific collateral which has enabled the payment of these bonds in full — was ever thought of as “collateral” and specifically as collateral for all the other series is so improbable in both the specific and the general contexts that I must reject this ground also.
Disagreement of my brothers with the order below leaves the ultimate disposition of the fund somewhat clouded, though the general thought is that it must go to unpaid, rather than fully paid, bondholders. I, too, prefer that, but, in view of the doubts now manifest, should think it more nearly correct to return the money to the successor of the guarantor, who had to advance it in the first place. I would reverse for that purpose.
On Petition for Modification
L. HAND, Chief Judge.
Although the error would not have affected the result on this appeal, we wish to correct what we said in our opinion about § 57, sub. h, of the Bankruptcy Act. The doctrine that a secured creditor may prove in bankruptcy only for the difference between the face of his claim, and what he has realized upon his security, does not apply unless the security is “property” of the bankrupt; * and therefore does not apply to a situation in which a creditor, who is secured not only by property of his principal debtor, but by the promise of a surety, proves against the bankrupt estate of that surety.
We assumed in our opinion that there would be a surplus of the sum, as yet undistributed, which has resulted from the liquidation of the securities in the Ninth Series. There will be no such surplus; indeed there will be a deficiency, if there is charged against that undistributed sum the whole principal and interest of the “Publicly Held Bonds,” the whole principal and interest of the “Subordinated Bonds” held by the Prudence Realization Corporation, and the lien of the Manhattan Bank. The proper distribution of the undistributed sum is not before us on this appeal, and we leave it for the consideration of the district court. The order will be reversed, as we have held before, and Prudence Realization Corporation will be permitted to assert any claims to the undistributed sum which it may desire, except of course that it may not assert any claims, as surrogate of the bondholders to whom it has paid any dividends as guarantor. In no other respects will our opinion be changed.
CLARK, Circuit Judge.
I do not object to this modification, while still standing upon my original dissent in part.

 Ivanhoe Building & Loan Ass’n v. Orr, 295 U.S. 243, 55 S.Ct. 685, 79 L.Ed. 1419; St. Louis Trust Union Co. v. Jol-liffie, 2 Cir., 74 F.2d 247.