Court Opinion

ID: 5455370
Source: CourtListenerOpinion
Date Created: 2022-01-09 19:17:37.57349+00
Date Added: 2024-06-11T08:32:37.436444
License: Public Domain

Gilbert, J.
I take it to be clear law, as well as equity, that when a debtor makes a general assignment of his property upon trust to pay his debts, and therein prefers á creditor to whom he had before the assignment given security for the payment of the debt due him, such creditor is entitled to the benefit of the collateral security, as well as his interest as a cestui *278que trust, until such deht shall have,been fully paid. If the collateral security be sufficient to pay the debt, equity, in order to protect creditors who have no lien on it, will compel the creditor holding the collateral security to'resort to that in the first instance; and even if it be insufficient, the same proceeding may be decreed when it will not trench upon the rights or operate to the prejudice of the creditor entitled to the double fund (Story Eq. Jur., § 633; Adams’ Eq., 272; Strong v. Skinner, 4 Barb., 559; Besley v. Lawrence, 11 Paige, 581).
But as was said by Lord Cottenham in Mason v. Bogg 2 My. & Cr., 443), a creditor who thus has a double security has a right to proceed against both, and to make the most he can of both. If a dividend under the assignment so reduces the debt that the collateral security will more than pay it, the only remedy of the assignors, or of the other beneficiaries, is to redeem (Story Eq. Jur., § 564, 6; Lewin on Trust, 485; Brinkerhoff v. Marvin, 5 Johns. OCh., 320; Hays v. Ward, 4 Id., 132; Woolcock v. Hart, 1 Paige, 185; Aldridge v. Cooper, 8 Ves, 382, and Notes in Lead. Cas. in Eq., 3d Am. ed., 276, et seq).
The Park Bank therefore has a right to receive its share of the proceeds of the assigned property, and to retain and enforce the collateral securities which it holds until the debt due it shall have been paid.
The question then is, what is its share of the funds now in the hands of the assignees.
This depends-on the interpretation of the instrument itself, and cannot be determined upon any notion of equity or equality, for the court has no power to create or order a new trust. The trust is “ to apply the proceeds towards the payment of the persons or corporations, holders now or at any future time, for the time being,” of a specified class of notes of the assignors. At the date of the assignment the bank held notes belonging te this class, amounting to $23,500, which were secured by a pledge of notes of other’parties. The bank has since collected $16,330.98 on account of these collaterals, leaving due $9573.55. The law applied these collections to the payment of the principal debt, so that the bank has ceased to be the holder of the notes thus paid. I think that the meaning of the *279assignment is that the assignees shall pay debts outstanding at the time of the execution of the trust, and not, as was contended by the counsel for the bank, that they shall make a distribution on the basis of the original indebtedness.
The referee’s report on this point is confirmed.
But the referee erred in relation to the proposed sale of the collaterals still held by the bank. There may be a decree for the sale of the interest of the assignors in them. But the court cannot interfere with the right of the bank to collect them.
A decree will be prepared and settled.