Court Opinion

ID: 8633564
Source: CourtListenerOpinion
Date Created: 2022-11-24 19:41:29.415182+00
Date Added: 2024-06-11T16:55:51.252632
License: Public Domain

RANDALL, District Judge.
The application to withdraw proof of debt is made, I presume, from abundance of caution, for the creditor has not commenced a suit at law or in equity, against the bankrupt; nor obtained a judgment, which would be surrendered by making the proof; and the securities which he holds, are collateral, and independent of the bankrupt’s personal liability. In England, a creditor who holds collateral security will not, generally speaking, be allowed to prove his debt, unless the security be surrendered. He may, however, by leave of the court, have the securities sold, or valued, and then prove for the balance of his debt; or if he have proved for the whole debt without reference to his security, the court, on application of the assignee, or other party in interest, will order the proof to be expunged, until the securities have been disposed of. The creditor may then (if there have been no frauds) prove for his balance.
In this case there was no concealment? and there is no allegation of other fraud;, nor is it pretended that the creditor elected to surrender his security, and to come in upon the estate for a dividend of the general assets. In Ex parte Downes, relied on by the counsel who opposed this motion, the creditor — supposing his mortgage to be of little value — had voluntarily surrendered it; and did not apply for leave to withdraw his proof of debt, and to have his mortgage restored to him, until by an actual sale its value had been ascertained to be much larger than the dividend which he had received from the general assets.
There is no evidence here that any one was misled by the act of Lapsley, or that, until this application was made, any creditor supposed that he had gained an advantage by the proof which had been made. The act of congress [of 1841 (5 Stat. 440)] gives to the court power to set aside and disallow any debt, on proof that it is founded on fraud or mistake. The proof in this case having been made for the full amount of the creditor’s demand, without deducting (as should have been done) the value of the security; and this appearing to have been done through mistake, the creditor has leave to withdraw the proof.