Court Opinion

ID: 8632170
Source: CourtListenerOpinion
Date Created: 2022-11-24 19:39:23.652201+00
Date Added: 2024-06-11T16:55:48.411550
License: Public Domain

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