Allen v. Danielson

• Decision Date: 05 March 1887
• Citation: Allen v. Danielson, 15 R. I. 480, 8 A. 705 (R.I. 1887)
• Parties: ALLEN v. DANIELSON, Assignee, and others.
• Court: Rhode Island Supreme Court

8 A. 705

15 R.I. 480

ALLEN

v. DANIELSON, Assignee, and others.

Supreme Court of Rhode Island.

March 5, 1887.

Bill in equity for an account, and for distribution.

Charles Hart, James M. Ripley, John C. B. Woods, and Joseph C. Ely, for complainants.

James Tillinghast, Edwin Aldrich, Charles Bradley, and Charles F. Ballon, for respondents.

DURFEE, C. J. The assignment under which the questions in this case are raised conveys all the property of the assignors, except such as is exempt from attachment by law, to the assignee, in trust to sell and convert it into money, and apply the proceeds to the payment—First, of certain claims entitled or allowed to be preferred; and, then, "for the equal benefit of all out creditors in proportion to their respective claims." At the time of the assignment some of the general creditors held claims which were secured by mort gage.

The first question is whether the creditors so secured were entitled to dividends on their full claims pro rata with the other creditors. The rule in bankruptcy, both in England and in this country, where we have a bankrupt law, is that creditors so secured shall have dividends only on the residue of their claims after converting and applying the security, or after deducting its appraised or agreed value. This rule has been applied sometimes in the settlement of an insolvent estate after the death of the debtor, or under his assignment; but, according to the decided weight of authority, the rule is to allow all the creditors to bring in their claims in full, and have dividends accordingly; it being the duty of the personal representative or assignee, if a secured debt is so reduced by the dividends that the security will more than pay it, to redeem for the benefit of the creditors. 1 Story, Eq. Jur. § 5646; Bisp. Eq. § 343; Jones, Pledges, § 587; Mason v. Bogg, 2 Mylne & C. 443: In re Xeres Wine Shipping Co., L. R. 3 Ch. 771; Moses v. Ranlet, 2 N H. 488; West v. Bank of Rutland, 19 Vt. 403; Walker v. Baxter, 26 Vt. 710; Findlay v. Hosmer, 2 Conn. 350; Logan v. Anderson, 18 B. Mon. 114; Citizens' Bank of Paris v. Patterson, 78 Ky. 291; Skunk's Appeal, 2 Pa. St. 304; Miller's Estate, 82 Pa. St. 113; Van Mater v. Ely, 12 N. J. Eq. 271; Evertson v. Booth, 19 Johns. 486; Jervis v. Smith, 7 Abb. Pr. (N. S.) 217; Bates v. Paddock, (111.) 9 N. E. Rep. 257.

The ground of decision in these cases is that the creditors are severally creditors to the full amount of their claims, and are therefore entitled to dividends to the full amount; the security being regarded as something collateral, which does not reduce the debt, but only secures the creditor pro tanto, in case the debtor or his estate cannot pay the debt in full. And in the case at bar this is the rule which comports with the language of the assignment declaring the trust, namely, that the assignee shall apply the proceeds, after paying the preferred creditors, "for the equal benefit of all our creditors, in proportion to their respective claims;" not in proportion to their claims less the value of any securities which they hold.

In the case of Re Knowles, 13 R. I. 90, this court allowed a creditor under an assignment who was secured, and who, after the presentation of her claim, had converted and applied her security, to share with the other creditors only to the extent of her unpaid residue. The case was a petition for an opinion on a case stated, and was doubtless submitted without full argument or presentation of authorities, so that the court, prepossessed in favor of the rule in bankruptcy on the score of equality, and by familiarity with it, and wishing to avoid a diversity of rules, supposing that there were two lines of decision of about equal authority to choose between, naturally, without the consideration which it might otherwise have bestowed, chose that line of decision which was in accord with the rule in bankruptcy. The case is not without respectable support. Amory v. Francis, 16 Mass. 308; Farnum v. Boutelle, 13 Mete. 159; Wurtz v. Hart, 13 Iowa, 515. But we have no doubt we should have decided the case differently if we had before us when we decided it the same array of authorities which we have before us now. The question, then, is, shall we adhere to it out of regard for the maxim stare decisis, or shall we adopt what we now consider the sounder rule? We have come to the conclusion that, considering how recently the case was decided, very little harm will come from overruling it, and that by doing so we shall not only establish the correct rule, but also, which is no inconsiderable gain, establish the rule which is generally prevalent elsewhere.

It appears in the case at bar that the assignee has already made two dividends. No part of the first was paid to the...