Union Nat. Bank v. People's Savings & Trust Co.

• Decision Date: 26 September 1928
• Docket Number: No. 3765.,3765.
• Citation: 28 F.2d 326
• Parties: UNION NAT. BANK OF JOHNSTOWN, PA. v. PEOPLE'S SAVINGS & TRUST CO., OF PITTSBURGH, PA.
• Court: U.S. Court of Appeals — Third Circuit

28 F.2d 326 (1928)

UNION NAT. BANK OF JOHNSTOWN, PA. v. PEOPLE'S SAVINGS & TRUST CO., OF PITTSBURGH, PA.

No. 3765.

Circuit Court of Appeals, Third Circuit.

September 26, 1928.

Robert C. Hoerle, of Johnstown, Pa., and Thomas H. Hasson, of Pittsburgh, Pa., for appellant.

George D. Wick, William E. Hague, and Reed, Smith, Shaw & McClay, all of Pittsburgh, Pa., for appellee.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

DAVIS, Circuit Judge.

This is an appeal from a decree of the District Court, dismissing exceptions to the master's report.

The Union National Bank of Johnstown loaned $17,500 to the Jersey Cereal Food Company upon its judgment notes therefor. When these notes became due, the bank demanded payment, but the Jersey Company was unable to pay, and gave the bank its gold notes, aggregating $19,000, as further evidence of the original loan of $17,500. The bank says that these notes were given "as additional security for the payment of the original judgment notes, totaling $17,500, and in consideration of an extension of time for the payment of the original notes."

The Jersey Company became indebted to various creditors in the sum of approximately $510,000, and some were threatening suits and attachment proceedings. A bill was filed, wherein it was alleged that the assets of the company were greater than its liabilities, but its property was likely to be subjected to judgments, executions, and attachments, which would interrupt the business and result in great loss, unless a receiver was appointed to continue the business and prevent the suits. An answer was filed by the Jersey Company, admitting these facts, and consenting to the appointment of a receiver. Thereupon the Real Estate Trust Company of Pittsburgh was appointed, and later the appellee was substituted as receiver. In due time the receiver filed its account, and a master was appointed to prepare a schedule of distribution among the creditors in accordance therewith. The appellant bank presented to the master a written claim, asking for pro rata distribution to it, not upon the indebtedness of $17,500, but upon the judgment notes and the gold notes, both aggregating $36,500. The master disallowed that part of the claim which was based upon the gold notes for $19,000, and the District Court affirmed the master. The bank appealed to this court.

All the assignments of error as to findings of fact and conclusions of law relate in one way or another to the failure of the master and District Court to allow the gold notes as part of the bank's provable claim, so that it would receive a pro rata share of the fund to be distributed among the creditors on the basis of $36,500, instead of $17,500, the actual amount loaned to the Jersey Company. The sole question is whether or not these gold notes should have been allowed as part of the bank's provable claim, entitling it to a distributive share of the fund on the basis of $36,500, so long as the percentage received did not exceed $17,500.

The bank contends that, when the original notes, aggregating $17,500, were due, and payment was demanded and refused, which was before the bill was filed, and while the Jersey Company was presumably solvent, the gold notes were given as additional security of the original obligation of $17,500, and the further extension of credit was the consideration therefor. The gold notes are sometimes called "additional" and sometimes "collateral" security, but the bank says that "it makes no difference by what term they are designated, as the position of the appellant that, whether the term collateral or additional security is used, the principle that `the collateral security stands by the side of the principal promise as an additional or cumulative means for securing the debt' applies." 11 Corpus Juris, p. 961. And in Osborne v. Stringham, 4 S. D. 593, 598, 57 N. W. 776, 778, the court said of "collateral security": "When a debtor delivers to his creditor an evidence of indebtedness, with the intention that it become...