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rections. Nothing remained for the circuit | sums received from his security prior there-
court to do except to enter a decree in ac-
cordance with the mandate, and, for the pur- "Rule 4. The creditor can prove for, and
poses of an appeal to this court, the decree receive dividends upon, the full amount of
of the circuit court of appeals was final. The his claim, regardless of any sums received
mandate went down and the circuit court from his collateral after the transfer of the
entered its decree in strict conformity there- assets from the debtor in insolvency, pro-
with before the appeal in No. 54 was prose-vided that he shall not receive more than the
cuted to this court. This promptness of ac- full amount due him."
tion 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 de-
cree of the circuit court of appeals.

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

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 enforcementities. 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 only 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

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 authorWe 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, requir ing 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 his assent to the assignment by filing his estate "only vests in him when he signifies National Bank, 158 Ill. 88 [30 L. R. A. 330]; claim with the assignee." Levy v. Chicago 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 Butes, 118 Ill. creditor, who realized therefrom $2,402.87. 524 [59 Am. Rep. 383]. And it is well esIt was held that such creditor was, notwith-tablished that in marshalling assets, as restanding, entitled to a dividend out of the spects creditors, no part of his security can assigned estate on the full amount of his be taken from a secured creditor until he is claim at the time of the execution of the as- completely satisfied. Leading Cases in signment. Mr. Justice Strong, then a mem- Equity, White & Tudor, vol. 2, pt. 1, 4th ber of the state tribunal, said: "By the deed Am. ed. pp. 258, 322. of assignment the equitable ownership of all the assigned property passed to the creditors. They became joint proprietors, and each creditor owned such a proportional part of the whole as the debt due to him was of the aggregate of the debts. The extent of his interest was fixed by the deed of trust. It was, indeed, only equitable; but whatever it was, he took it under the deed, and it was only as a part owner that he had any standing in court when the distribution came to be made. It amounts to very little to argue that Miller's recovery of the $2,402.87 operated with precisely the same effect as if a voluntary payment had been made by the assignor after his assignment; that 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 duc 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."

*In Greenwood v. Taylor, 1 Russ. & M. 185,[139] Sir John Leach applied the bankruptcy rule in the administration of a decedent's estate, and remarked that the rule was "not founded, as has been argued, upon the peculiar jurisdiction in bankruptcy, but rests upon the general principles of a court of equity in the administration of assets;" and referred to the doctrine requiring a creditor having two funds as security, one of which he shares with others, to resort to his sole security first. But Greenwood v. Taylor was in effect overruled by Lord Cottenham in Mason v. Bogg, 2 Myl. & C. 443, 488, and expressly so by the court of appeal in chancery in Kellock's Case; and the application of the bankruptcy rule rejected.

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.

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 mort gager has a double security. He has a light 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 mortga gee, 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 mortgagor and mortgagee by analogy to a rule which has been adopted by a court having a peculThe fourth rule is that ordinarily laid iar jurisdiction, established for administerdown by the chancery courts, to the effecting the property *of traders unable to meet[140] that, as the trust created by the transfer of the assets by operation of law or other wise 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,

We

their engagements, which property that
court found it proper and right to distrib-
ute 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."

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

643

mortgagee might prove his whole debt and
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 purpose, but the obligation to which the collaterals are subsidiary remains the same. The creditor can sue, recover judgment, and collect from the debtor's general property, and apply the proceeds of the collateral to any balance which may remain. Insolvency proceedings 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 relations between the creditor and his co-creditors 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.

by Chief Justice Parker in Amory v. Fran-
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 disapproved 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 account to be deprived of the right to prove for his full claim against an insolvent estate. Many of the cases are referred to in Chemical 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 be come 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.

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 co-
creditors 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
Section 5235 of the Revised Statutes re-
the other creditors. And while the unsecured
creditors are entitled to be substituted as quires the Comptroller, after appointing such
far as possible to the rights of secured cred-receiver, to give notice by newspaper adver-
itors, the latter are entitled to retain their
securities until the indebtedness due them is
extinguished.

The contractual relations between borrower 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." The creditor looks to the debtor to repay the money borrowed, and to the collateral to accomplish this in whole or in part; and he cannot be deprived either of what his debtor's general ability to pay may yield, or of the particular security he has taken.

We cannot concur in the view expressed

tisement for three consecutive months, "call-
ing 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 with 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 Comptrol

173 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 pro-
ceeds of the assets of such association are
paid over to him, shall make further divi-
dends on all claims previously proved or ad-
judicated; and the remainder of the pro-
ceeds, if any, shall be paid over to the share-
holders of such association, or their legal
representatives, in proportion to the stock
by them respectively held."

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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 claims
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: "Divi- The 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 how its allowance can be considered a preference, and it is clear that it is only the balance, if any, after the set-off is deducted, 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.

the question whether particular creditors
have security or not. When secured cred-
itors have received payment in full, their
right to dividends, and their right to retain
their securities, cease, but collections there-
from are not otherwise material. Insolvency
gives unsecured creditors no greater rights
than they had before, though through re-
demption or subrogation or the realization
of a surplus they may be benefited.

The case was rightly decided by the cir
cuit court of appeals; its decree in No. 54 is
affirmed; and the decree of the circuit court,
entered July 27, 1896, in pursuance of the
mandate of that court, is also affirmed.
Remanded accordingly.

cured creditor "was not allowed to prove his whole debt, unless he gave up any security held by him on the estate against which he sought to prove. He might realize his security himself if he had power to do so, or he might apply to have it realized by the court of bankruptcy, or by some other court having competent jurisdiction, and might prove for, any deficiency of the proceeds to satisfy his demand; but if he neglected to do this, [146]and proved for his whole debt, he was bound to give up his security." Robson, Law, Bank. 336. But it was only under bankrupt laws that such election could be compelled. Tayloe v. Thompson, 5 Pet. 358, 396 [8: 154, 158]. And we are unable to accept the suggestion that compulsion under those laws was the result merely of the provision for ratable distribution, which only operated to prevent preferences and to make all kinds of estates, both real and personal, assets for the pay- The court now decides: 1st. That on the ment of debts, and to put specialty and failure of a national bank a creditor theresimple-contract creditors on the same foot of whose debt is secured by pledge is entitled ing, and so gave to all creditors the right to to be recognized and classed by the Compcome upon the common fund. Equality be- troller of the Currency to the full amount tween them was equity, but that was not in- of his debt, without in any way taking into consistent with the common-law rule award-account the collaterals by which the debt is ing to diligence, prior to insolvency, its ap-secured, and on the amount so recognized he propriate reward; or with conceding the validity of prior contract rights.

We repeat that it appears to us that the secured creditor is a creditor to the full amount due him when the insolvency is de clared, just as much as the unsecured creditor is, and cannot be subjected to a different rule. And as the basis on which all creditors are to draw dividends is the amount of their claims at the time of the declaration of insolvency, it necessarily results, for the purpose of fixing that basis, that it is immaterial what collateral any particular creditor may have. The secured creditor cannot be charged with the estimated value of the collateral, or be compelled to exhaust it before enforcing his direct remedies against the debtor, or to surrender it as a condition thereto, though the receiver may redeem or be subrogated as circumstances may require. Whatever Congress may be authorized to enact by reason of possessing the power to pass uniform laws on the subject of bankruptcies, it is very clear that it did not intend to impinge upon contracts existing between creditors and debtors, by anything prescribed in reference to the administration of the assets of insolvent national banks. Yet it is obvious that the bankruptcy rule converts what on its face gives the secured creditor an equal right with other creditors into a preference against him, and hence takes away a right which he already had. This a court of equity should never do, unless required by statute at the time the indebtedness was created.

Mr. Justice White, with whom concurred
Mr. Justice Harlan and Mr. Justice Mc-
Kenna, dissenting:

is entitled to be paid out of the general as-
sets the sum of any dividend which may be
declared. 2d. That this right to be classed
for the full amount of the debt, without re-
gard to the value of the collaterals, is fixed
by the date of the insolvency and continues
to the final distribution, whatever may be
the change in the debt thereafter brought
about by the realization of the securities,
provided only that the sums received by the
creditor by way of dividends and from the
amount collected from the collaterals do not[148]
exceed the entire debt and therefore extin-
guish it.

I am constrained to dissent from these
propositions, because, in my opinion, their
enforcement will produce inequality among
creditors and operate injustice, and, as a
necessary consequence, are inconsistent with
the national banking act.

It cannot be doubted that the acts of Congress, which regulate the collection and distribution of the assets of an insolvent national bank, are controlling. It is clear that every creditor who contracts with such bank does so subject to the provisions directing the manner of distributing the assets of such bank in case of its insolvency, and therefore that the terms of the act enter into and form part of every contract which such bank may make. Now, the act of Congress makes it the duty of the receiver appointed by the Comptroller to liquidate the affairs of a failed national bank, to take possession of and realize its assets (Rev. Stat. 5234), to call, by advertisement for ninety days, upon

[147] *The requirement of equality of distribu-editors to present and make legal proof

tion among creditors by the national bank
ing act involves no invasion of prior con-
tract rights of any of such creditors, and
ought not to be construed as having, or being
intended to have, such a result.

of their claims (Rev. Stat. § 5235), and from the proceeds of the assets the Comptroller is directed to make a “ratable dividend" on the ecognized claims (Rev. Stat. § 3230). To prevent preferences the law, morcover, diOur conclusion is that the claims of cred-rects that all contracts from which preferitors are to be determined as of the date of ences may arise, made after the commission the declaration of insolvency, irrespective of of ar act of insolvency or in contemplation

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