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by the Comptroller of the Currency, and entered upon the discharge of his duties. At the time of the failure of the bank, it was indebted to the National Bank of Jacksonville in the sum of $6,010.47, on sundry drafts, which indebtedness was unsecured; and also in the sum of $10,093.34, being $10,000, and interest, for money borrowed June 5, 1891, evidenced by a certificate of deposit, which was secured by sundry notes belonging to the First National Bank of Palatka, attached to the certificate as collateral. These notes aggregated $10,896.22, the largest being a note of A. L. Hart for [132]$5,350.22. The National Bank of Jacksonville proved its claim upon the unsecured drafts for $6,010.47, and as to this there was no controversy. It also offered to prove its claim for $10,093.34, but the receiver would not permit it to do this, and, under the ruling of the Comptroller of the Currency, it was ordered first to exhaust the collaterals given to secure the certificate of deposit, and then to prove for the balance due after applying the proceeds of the collaterals in part payment.

The Jacksonville Bank collected all the notes excepting that of A. L. Hart, obtained a judgment on the latter, which it assigned and transferred to the receiver, applied the proceeds of the collaterals which it had collected to its claim on the certificate, and proved for the balance due thereon, being the sum of $4,496.44. On December 1, 1892, a dividend of $1,573.75 was paid on the claim as thus proved and on May 17, 1893, a second dividend of $449.64 was paid.

On the 11th of September, 1894, the Jacksonville Bank filed its bill of complaint in the Circuit Court of the United States for the Southern District of Florida against Merrill as receiver, which set forth the foregoing facts, complained of the action of the receiver in not permitting proof for the full amount of the certificate of deposit, and alleged that it "gave due notice that it would demand a pro rata dividend upon the whole amount due your orator, without deducting the amount collected on collateral security, -to wit, that it would demand a pro rata dividend upon $16,103.81, and interest thereon from the 17th day of July, A. D. 1891."

The prayer of the bill was, among other things, for a pro rata distribution on the entire amount of the indebtedness.

The defendant demurred to the bill, and, the demurrer having been overruled, answered, denying "that the complainant gave due notice that it would demand a pro rata dividend upon the whole amount due to it without deducting the amount collected on collateral security;" and averring, to the contrary, that "the complainant accepted the said ruling of the said Comptroller without demur, and accepted from the said Comptroller, through this defendant, without protesting notice of any kind, the checks of the [133]said Comptroller "in payment of the dividends mentioned in the bill, and that it was not until the 15th of March, 1894, that the complainant gave notice of any kind that it dissented from the said ruling of the Comptrol173 U. S. U. S.. BOOK 43.

41

ler and would demand payment upon a different basis."

Sundry exceptions were taken to the answer, which were overruled, and the cause was set down for final hearing on bill and answer.

The circuit court entered its decree, January 29, 1896, that complainant was entitled to receive dividends on the whole face of the indebtedness due July 17, 1891, less the dividends actually paid to it; that the receiver declare the dividend on the basis of the whole claim, and pay it out of any assets which were in his hands March 15, 1894; and that he render an account.

From this decree the receiver prosecuted an appeal to the circuit court of appeals for the fifth circuit. That court, differing from the circuit court as to the form of its decree, reversed it and remanded the cause, with di rections to enter a decree that the Jacksonville Bank was entitled to prove its claims to the entire amount of the indebtedness, and to the payment thereon of the same dividends as had been paid on other indebtedness of the Palatka Bank, with interest on such dividends from the date of the declaration thereof, less a credit of the sums which had been paid as dividends on the part of the claim theretofore allowed, provided the dividends theretofore paid and thereafter to be paid on the sum of $10,093.34, together with the amounts theretofore and thereafter received on the collaterals securing that indebtedness, should not exceed one hundred cents on the dollar of the principal and interest of said debt; that the receiver recognize the Jacksonville Bank as creditor of the Palatka Bank in said sum of $10,093.34 as of July 17, 1891, and pay dividends as aforesaid thereon, or certify the same to the Comptroller of the Currency, to be paid in due course of administration; and that the Jacksonville Bank receive, before further payment to other creditors, its due proportion of the dividends as thus declared, with interest. 41 U. S. App. 529. From that decree, "after the mandate of the circuit court [134] of appeals had been sent down to the circuit court, and proceedings had thereunder, an appeal was taken and perfected to this court, and is numbered 54 of this term.

The decree was entered by the circuit court in pursuance of the mandate of the circuit court of appeals, July 27, 1896, and the receiver prayed an appeal therefrom to the circuit court of appeals, which was by

that court dismissed on motion of the Jack

sonville Bank. 41 U. S. App. 645. From this decree of dismissal, an appeal was allowed and perfected to this court, and is numbered 55 of this term.

These appeals were argued together.

Messrs. Edward Winslow Paige and
Francis F. Oldham for appellant.
Messrs. William Worthington, George
H. Yeaman, and J. C. Cooper for appellee.

*Mr. Chief Justice Fuller delivered the [134) opinion of the court:

The circuit court of appeals reversed the decree of the circuit court, with specific di641

rections. Nothing remained for the circuit | sums received from his security prior there

court to do except to enter a decree in accordance with the mandate, and, for the purposes of an appeal to this court, the decree of the circuit court of appeals was final. The mandate went down and the circuit court entered its decree in strict conformity therewith before the appeal in No. 54 was prosecuted to this court. This promptness of action did not, however, cut off that appeal, and any difficulty in our dealing with the cause in the circuit court was obviated by the second appeal, which brings before us in No. 55 the record subsequent to the first decree of the circuit court of appeals.

It is contended that the bill should have been dismissed because of adequate remedy [185]at law, and on the ground of *laches and estoppel. As the controversy involved the question on what basis dividends should have been declared, and therein the enforcement of the administration of the trust in accordance with law, we have no doubt of the jurisdiction in equity.

Nor was the lapse of time such as to raise any presumption of laches, nor could an estoppel properly be held to have arisen. Less than two years had elapsed from the payment of the first dividend to the filing of the bill, and the other creditors of the insolvent bank had not been harmed by the temporary submission of complainant to the ruling of the Comptroller. The decree affected only assets on hand or such as might be subsequently discovered; and if the other creditors had no rights superior to that of complainant, they lost nothing by the reduction of their dividends, if any, afterwards declared to be paid out of such assets.

The inquiry on the merits is, generally speaking, whether a secured creditor of an insolvent national bank may prove and receive dividends upon the face of his claim as it stood at the time of the declaration of insolvency, without crediting either his collaterals or collections made therefrom after such declaration, subject always to the proviso that dividends must cease when from them and from collaterals realized the claim has been paid in full.

Counsel agree that four different rules have been applied in the distribution of insolvent estates, and state them as follows:

"Rule 1. The creditor desiring to participate in the fund is required first to exhaust his security and credit the proceeds on his claim, or to credit its value upon his claim and prove for the balance, it being optional with him to surrender his security and prove

for his full claim.

"Rule 2. The creditor can prove for the full amount, but shall receive dividends only on the amount due him at the time of distribution of the fund; that is, he is required to credit on his claim, as proved, all sums received from his security, and may receive dividends orly on the balance due him.

[136] "Rule 3. The creditor shall be allowed to prove for, and receive dividends upon, the amount due him at the time of proving or sending in his claim to the official liquidator, being required to credit as payments all the

to.

"Rule 4. The creditor can prove for, and receive dividends upon, the full amount of his claim, regardles of any sums received from his collateral after the transfer of the assets from the debtor in insolvency, provided that he shall not receive more than the full amount due him."

The circuit court and the circuit court of appeals held the fourth rule applicable, and decreed accordingly.

This was in accordance with the decision of the circuit court of appeals for the sixth circuit, in Chemical National Bank v. Armstrong, 16 U. S. App. 465, Mr. Justice Brown, Circuit Judges Taft and Lurton, composing the court. The opinion was delivered by Judge Taft, and discusses the question on principle with a full citation of the authorities. We concur with that court in the proposition that assets of an insolvent debtor are held under insolvency proceedings in trust for the benefit of all his creditors, and that a creditor, on proof of his claim, acquires a vested interest in the trust fund; and, this being so, that the second rule before mentioned must be rejected, as it is based on the denial, in effect, of a vested interest in the trust fund, and concedes to the creditor simply a right to share in the distributions made from that fund according to the amount which may then be due him, requiring a readjustment of the basis of distribution at the time of declaring every dividend, and treating, erroneously as we think, the claim of the creditor to share in the assets of the debtor, and his debt against the debtor, as if they were one and the same thing.

The third and fourth rules concur in holding that the creditor's right to dividends is to be determined by the amount due him at the time his interest in the assets becomes vested, and is not subject to subsequent change, but they differ as to the point of time when this occurs.

In Kellock's Case, L. R. 3 Ch. 769, it was held that the creditor's interest in the gen-[137] eral fund to be distributed vested at the date of presenting or proving his claim; and this rule has been followed in many jurisdictions where statutory provisions have been construed to require an affirmative election to become a beneficiary thereunder. For instance, the cases in Illinois construing the assignment act of that state, which are well considered and full to the point, hold that the interest of each creditor in the assigned estate "only vests in him when he signifies

his assent to the assignment by filing his

claim with the assignee." Levy v. Chicago National Bank, 158 Ill. 88 [30 L. R. A. 330]; Furness v. Union National Bank, 147 Ill. 570.

On the other hand, the supreme court of Pennsylvania in Miller's Appeal, 35 Pa. 481, and many subsequent cases, has held, necessarily in view of the statutes of Pennsylvania regulating the matter, that the interest vests at the time of the transfer of the assets in trust. In that case the debtor executed a general assignment for the benefit of creditors. Subsequently the assignor became en

titled to a legacy which was attached by a | Eq. Jur. (13th ed.) § 633; Re Bates, 118 III. creditor, who realized therefrom $2,402.87. 524 [59 Am. Rep. 383]. And it is well es

tablished that in marshalling assets, as re spects creditors, no part of his security can be taken from a secured creditor until he is completely satisfied. Leading Cases in Equity, White & Tudor, vol. 2, pt. 1, 4th Am. ed. pp. 258, 322.

It was held that such creditor was, notwithstanding, entitled to a dividend out of the assigned estate on the full amount of his claim at the time of the execution of the assignment. Mr. Justice Strong, then a member of the state tribunal, said: "By the deed of assignment the equitable ownership of all *In Greenwood v. Taylor, 1 Russ. & M. 185,[139] the assigned property passed to the creditors. Sir John Leach applied the bankruptcy rule They became joint proprietors, and each in the administration of a decedent's estate, creditor owned such a proportional part of and remarked that the rule was "not foundthe whole as the debt due to him was of the ed, as has been argued, upon the peculiar juaggregate of the debts. The extent of his risdiction in bankruptcy, but rests upon the interest was fixed by the deed of trust. It general principles of a court of equity in the was, indeed, only equitable; but whatever it administration of assets;" and referred to was, he took it under the deed, and it was the doctrine requiring a creditor having two only as a part owner that he had any stand- funds as security, one of which he shares ing in court when the distribution came to with others, to resort to his sole security be made. It amounts to very little first. But Greenwood v. Taylor was in effect to argue that Miller's recovery of the $2,- overruled by Lord Cottenham in Mason v. 402.87 operated with precisely the same ef- Bogg, 2 Myl. & C. 443, 488, and expressly so made by the assignor fect as if a voluntary payment had been by the court of appeal in chancery in Kelnor after his assignment; t; lock's Case; and the application of the bankthat is, that it extinguished the debt to the amount recovered. No doubt it did, but it is not as a creditor that he is entitled to a (138] distributive share of the trust fund. His rights are those of an owner by virtue of the deed of assignment. The amount of the debt due to him is important only so far as it determines the extent of his ownership. The reduction of that debt, therefore, after the creation of the trust and after his ownership had become vested, it would seem, must be immaterial."

Differences in the language of voluntary assignments and of statutory provisions naturally lead to particular differences in decision, but the principle on which the third and fourth rules rest is the same. In other words, those rules hold, together with the first rule, that the creditor's right to dividends is based on the amount of his claims at the time his interest in the assets vests by the statute, or deed of trust, or rule of law, under which they are to be administered.

The first rule is commonly known as the bankruptcy rule, because enforced by the bankruptcy courts in the exercise of their peculiar jurisdiction, under the bankruptcy acts, over the property of the bankrupt, in virtue of which creditors holding mortgages or liens thereon might be required to realize on their securities, to permit them to be sold, to take them on valuation, or to surrender them altogether, as a condition of proving against the general assets.

The fourth rule is that ordinarily laid down by the chancery courts, to the effect that, as the trust created by the transfer of the assets by operation of law or otherwise is a trust for all creditors, no creditor can equitably be compelled to surrender any other vested right he has in the assets of his debtor in order to obtain his vested right under the trust. It is true that, in equity, a creditor having a lien upon two funds may be required to exhaust one of them in aid of creditors who can only resort to the other, but this will not be done when it trenches on the rights or operates to the prejudice of the party entitled to the double fund. Story,

ruptcy rule rejected.

In Kellock's Case, Lord Justice W. Page Wood, soon afterwards Lord Chancellor Hatherly, said:

"Now, in the case of proceedings with reference to the administration of the estates of deceased persons, Lord Cottenham put the point very clearly, and said: 'A mortgagee has a double security. He has a night to proceed against both, and to make the best he can of both. Why he should be deprived of this right because the debtor dies, and dies insolvent, it is not very easy to see.'

"Mr. De Gex, who argued this case very ably, says that the whole case is altered by the insolvency. But where do we find such a rule established, and on what principle can such a rule be founded, as that where a mortgagor is insolvent the contract between him and his mortgagee is to be treated as altered in a way prejudicial to the mortgagee, and that the mortgagee is bound to realize his security before proceeding with his personal demand?

"It was strongly pressed upon us, and the argument succeeded before Sir J. Leach in Greenwood v. Taylor, that the practice in bankruptcy furnishes a precedent which ought to be followed. But the answer to that is, that this court is not to depart from its own established practice, and vary the nature of the contract between imortgagor and mortgagee by analogy to a rule which has been adopted by a court having a peculiar jurisdiction, established for administering the property *of traders unable to meet[140] their engagements, which property that court found it proper and right to distribute in a particular manner, different from the mode in which it would have been dealt with in the court of chancery. are asked to alter the contract between the parties by depriving the secured creditor of one of his remedies, namely, the right of standing upon his securities until they are redeemed."

We

And it was the established rule in England prior to the judicature act, 38 & 39 Vict. chap. 77, that in an administration suit a

:

mortgagee might prove his whole debt and by Chief Justice Parker in Amory v. Fran

afterwards realize his security for the differ-
ence; and so as to creditors with security,
where a company was being wound up under
the companies act of 1862. 1 Daniel, Ch.
Pr. 384; Re Withernsea Brickworks, L. R.
16 Ch. Div. 337.

Certainly the giving of collateral does not
operate of itself as a payment or satisfac-
tion, either of the debt or any part of it, and
the debtor who has given collateral security
remains debtor, notwithstanding, to the full
amount of the debt; and so in Lewis v.
United States, 92 U. S. 623 [23:515], it was

ruled that "it is a settled principle of equity
that a creditor holding collaterals is not
bound to apply theme before enforcing his di-
rect remedies against the debtor."

Doubtless the title to collaterals pledged
for the security of a debt vests in the pledgee
so far as necessary to accomplish that pur-
pose, but the obligation to which the collat-
erals are subsidiary remains the same. The
creditor can sue, recover judgment, and col-
lect from the debtor's general property, and
apply the proceeds of the collateral to any
balance which may remain. Insolvency pro-
ceedings shift the creditor's remedy to the
interest in the assets. As between debtor
and creditor, moneys received on collaterals
are applicable by way of payment; but as
under the equity rule the creditor's rights in
the trust fund are established when the fund
is created, collections subsequently made
from, or payments subsequently made on,
collateral, cannot operate to change the rela-
tions between the creditor and his co-credit-
ors in respect of their rights in the fund.

As Judge Taft points out, it is because of [141]the distinction *between the right in personam and the right in rem that interest is only added up to the date of insolvency, although, after the claims as allowed are paid in full, interest accruing may then be paid before distribution to stockholders.

In short, the secured creditor is not to be cut off from his right in the common fund because he has taken security which his cocreditors have not. Of course, he cannot go beyond payment, and surplus assets, or so much of his dividends as are unnecessary to pay him, must be applied to the benefit of the other creditors. And while the unsecured creditors are entitled to be substituted as far as possible to the rights of secured creditors, the latter are entitled to retain their securities until the indebtedness due them is extinguished.

The contractual relations between borrow-
er and lender, pledging collaterals, remain,
as is said by the New York court of appeals
in People v. Remington, 121 N. Y. 328 [8 L.
R. A. 458], "unchanged although insolvency
has brought the general estate of the debtor
within the jurisdiction of a court of equity
for administration and settlement."

creditor looks to the debtor to repay the
money borrowed, and to the collateral to ac-
complish this in whole or in part; and he
cannot be deprived either of what his debt-
or's general ability to pay may yield, or of
the particular security he has taken.

We cannot concur in the view expressed

cis, 16 Mass. 308 (1820), that "the property
pledged is in fact security for no more of the
debt than its value will amount to; and for
all the rest the creditor relies upon the per-
sonal credit of his debtor, in the same man-
ner he would for the whole if no security
were taken."

We think the collateral is security for the
whole debt and every part of it, and is as
applicable to any balance that remains after
payment from other sources, as to the orig-
inal amount due; and that the assumption is
unreasonable that the creditor does not rely

on the responsibility of his debtor according
to his promise.

The ruling in Amory v. Francis was dis-
approved shortly after it was made, by the[142]
supreme court of New Hampshire in Moses
v. Ranlet, 2 N. H. 488 (1822), Woodbury, J.,
afterwards Mr. Justice Woodbury of this
court, delivering the opinion, and is rejected
by the preponderance of decisions in this
country, which sustain the conclusion that
a creditor with collateral is not on that ac-
count to be deprived of the right to prove for
his full claim against an insolvent estate.
Many of the cases are referred to in Chem-
ical Nat. Bank v. Armstrong, and these and
others given in the Encyclopedia of Law and
Eq. 2d ed. vol. 3, p. 141.

Does the legislation in respect to the administration of national banks require the application of the bankruptcy rule? If not, we are of opinion that the equity rule was properly applied in this case.

By section 5234 of the Revised Statutes, and section 1 of the act of June 30, 1876, chap. 156 (19 Stat. at L. 63), the Comptroller of the Currency is authorized to appoint a receiver to close up the affairs of a national banking association when it has failed to redeem its circulation notes when presented for payment, or has been dissolved and its charter forfeited, or has allowed a judgment to remain against it unpaid for thirty days, or whenever the Comptroller shall have become satisfied of its insolvency after examining its affairs. Such receiver is to take possession of its effects, liquidate its assets, and pay the money derived therefrom to the Treasurer of the United States.

Section 5235 of the Revised Statutes requires the Comptroller, after appointing such receiver, to give notice by newspaper advertisement for three consecutive months, "calling on all persons who may have claims against such association to present the same, and to make legal proof thereof."

By section 5242, transfers of its property by a national banking association after the commission of an act of insolvency, or in contemplation thereof, to prevent distribution of its assets in the manner provided by the chapter of which that section forms a part, or a view to preferring any creditor except in payment of its circulating notes, are declared to be null and void.

*Section 5236 is as follows:

"From time to time, after full provision has first been made for refunding to the United States any deficiency in redeeming the notes of such association, the Comptrol173 U. S.

[143] ler shall make a ratable dividend of the money so paid over to him by such receiver on all such claims as may have been proved to his satisfaction, or adjudicated in a court of competent jurisdiction, and, as the proceeds of the assets of such association are paid over to him, shall make further dividends on all claims previously proved or adjudicated; and the remainder of the proceeds, if any, shall be paid over to the shareholders of such association, or their legal representatives, in proportion to the stock by them respectively held."

that is to say, proportionally. To be pro-
portionate they must be made by some uni-
form rule. They are to be paid on all claime
against the bank previously proved and ad-
judicated. All creditors are to be treated
alike. The claim against the bank, there-
fore, must necessarily be made the basis of
the apportionment.
The business
of the bank must stop when insolvency, is
declared. Rev. Stat. § 5228. No new debt
can be made after that. The only claims the
Comptroller can recognize in the settlement
of the affairs of the bank are those which are
shown by proof satisfactory to him, or by the
adjudication of a competent court, to have
had their origin in something done before the
insolvency. It is clearly his duty, there-
fore, in paying dividends, to take the value
of the claim at that time as the basis of dis-
tribution."

In Cook County National Bank v. United States, 107 U. S. 445 [27: 537], it was ruled that the statute furnishes a complete code for the distribution of the effects of an insolvent national bank; that its provisions are not to be departed from; and that the bankrupt law does not govern distribution thereunder. The question now before us was not treated as involved and was not decided, but the case is in harmony with First National Bank v. Colby, 21 Wall. 609 [22:687], and Scott v. Armstrong, 146 U. S. 499 [36: 1059], which proceed on the view that all rights, legal or equitable, existing at the time of the commission of the act of insolvency which led to the appointment of the receiver, other than those created by preference forbidden by section 5242, are preserved; and that no additional right can thereafter be created, either by voluntary or involuntary proceedings. The distribution is to be "ratable" on the claims as proved or adjudicated, that is, on one rule of proportion applicable to all alike. In order to be "ratable" the claims must manifestly be estimated as of the same point of time, and that date has been adjudged to be the date of the declaration of insolvency. White v. Knox, 111 U. S. 784 [28: 603]. In that case it appeared that the Miners' National Bank had been put in the hands of a receiver by the Comptroller of the Currency, December 20, 1875. White presented a claim for $60,000, which the Comptroller refused to allow. White then brought suit to have his claim adjudicated, and on June 23, 1883, recovered [144] judgment for $104,523.72, being *the amount of his claim with interest to the date of the judgment. Meanwhile the Comptroller had paid the other creditors ratable dividends, aggregating sixty-five per cent of the amounts due them, respectively, as of the date when the bank failed. When White's claim was adjudicated, the Comptroller calculated the amount due him according to the judgment as of the date of the failure, and paid him sixty-five per cent on that amount. White admitted that he had received all that was due him on the basis of distribution assumed by the Comptroller, but claimed that he was entitled to have his dividends calculated on the face of the judgment, which would give him several thousand dollars more than he had received, and he applied for a mandamus to compel the payment to him of the additional sum. The writ was refused by the court below, and its judgment was affirmed. Mr. Chief Justice Waite, speaking for the court, said: "DiviThe rule in bankruptcy went upon the dends are to be paid to all creditors, ratably, principle of election; that is to say, the se

In Scott v. Armstrong, 146 U. S. 499 [36: 1059], it was argued that the ordinary equity rule of set-off in case of insolvency did not apply to insolvent national banks in view of sections 5234, 5236, and 5242 of the Revised Statutes. It was urged "that these sections by implication forbid this set-off because they require that, after the redemption of the circulating notes has been fully provided for, the assets shall be ratably distributed among the creditors, and that no preferences given or suffered, *in contemplation of or after com-[145] mitting the act of insolvency, shall stand;" and "that the assets of the bank existing at the time of the act of insolvency include all its property without regard to any existing liens thereon or set-offs thereto." But this court said: "We do not regard this position as tenable. Undoubtedly, any disposition by a national bank, being insolvent or in contemplation of insolvency, of its choses in action, securities, or other assets, made to prevent their application to the payment of its circulating notes, or to prefer one creditor to another, is forbidden; but liens, equities, or rights arising by express agreement, or implied from the nature of the dealings between the parties, or by operation of law, prior to insolvency and not in contemplation thereof, are not invalidated. The provisions of the act are not directed against all liens, securities, pledges, or equities, whereby one creditor may obtain a greater payment than another, but against those given or arising after or in contemplation of insolvency. Where a set-off is otherwise valid, it is not perceived Comptroller how its allowance can be considered a pref

erence, and it is clear that it is only the balance, if any, after the set-off is deducted, de which can justly be held to form part of the assets of the insolvent. The requirement as to ratable dividends is to make them from what belongs to the bank; and that which at the time of the insolvency belongs of right to the debtor does not belong to the bank."

The set-off took effect as of the date of the declaration of insolvency, but outstanding collaterals are not payment, and the statute does not make their surrender a condition to the receipt by the creditor of his share in the assets.

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