In re Emlen's Estate

• Court: United States State Supreme Court of Pennsylvania
• Writing for the Court: LINN, Justice
• Citation: 4 A.2d 143,333 Pa. 238
• Parties: In re EMLEN'S ESTATE.
• Decision Date: 26 January 1939

4 A.2d 143
333 Pa. 238

In re EMLEN'S ESTATE.

Supreme Court of Pennsylvania.

Jan. 26, 1939.

4 A.2d 143

Appeals Nos. 356, 368, 424, January term, 1938, from decree of Orphans' Court, Philadelphia County, No. 1689, 1936; Grover C. Ladner, Judge.

Proceedings in the estate of Samuel Emlen, also known as Samuel Emlen, Jr., and Samuel Emlen, Jr., deceased, on the separate claims of Germantown Trust Company, Land Title Bank & Trust Company and Germantown Trust Company, as trustee under the will of Warren R. Shriver, deceased. From an adverse decree, the claimants separately appeal.

Reversed as to each appellant, and remanded, with directions.

Argued before KEPHART, C. J., and SCHAFFER, MAXEY, DREW, LINN, STERN, and BARNES, JJ.

Howard H. Rapp, of Philadelphia (Morgan, Lewis & Bockius, of Philadelphia, of counsel), for appellant Germantown Trust Co.

Robert Brigham, of Philadelphia (Ballard, Spahr, Andrews & Ingersoll, of Philadelphia, of counsel), for appellant Land Title Bank & Trust Co.

Shippen Lewis and Mark Willcox, Jr., both of Philadelphia (MacCoy, Brittain, Evans & Lewis, of Philadelphia, of counsel), for Germantown Trust Co. as Trustee.

Frank A. Bedford, Jr., of Philadelphia, for appellee Sav. Fund Soc., etc.

John F. E. Hippel, of Philadelphia, for appellee Eliz. T. Anderson.

Shippen Lewis, of Philadelphia, for appellees Marion H. Emlen, executrix, and others.

Clarence M. Freedman, Asst. City Sol., and Joseph Sharfsin, City Sol., both of Philadelphia, Edward S. Morris, Sp. Deputy Atty. Gen., and Allen C. Thomas and William D. Harkins, both of Philadelphia, for appellee North Star B. & L. Assn.

Edmonds, Obermayer & Rebmann, of Philadelphia, for other appellees.

LINN, Justice.

There are three appeals from the decree distributing the property left by Samuel Emlen who died April 20, 1936, insolvent. The appeal at No. 356 is by the Germantown Trust Company in its own right; at No. 424 by the same appellant, as trustee under the will of Warren R. Shriver; and at No. 368, by the Land Title Bank and Trust Company.

No. 356.

The claim is on a $20,000 demand note with collateral composed of three bonds of John L. Pryor, Jr., secured by three mortgages on certain land. The legal title to these bonds and mortgages, when assigned, was in decedent, who, however, owned only half the beneficial interest. No foreclosure has taken place. For the purposes of this case it was agreed that at his death the value of the collateral was $15,000. The question was whether claimant, the Germantown Trust Company, could prove for

4 A.2d 144

the full amount of its claim, or whether it must allow credit for $15,000, the value of the collateral, or for $7,500, the value of decedent's interest in the collateral. The learned court below held that claimant must allow credit for $15,000, though the insolvent's interest was but half that sum.

The court recognized that it would be inequitable to allow a creditor, holding property of an insolvent as security, to participate in the distribution of the insolvent's property without surrendering the collateral for the benefit of all. But the court went further. By requiring the claimant to surrender the collateral or allow credit of $15,000 the court, in effect, required the secured creditor to contribute to the insolvent's property for distribution among his creditors the sum of $7,500 which did not belong to the insolvent and which his creditors could not have taken in execution; in short, the secured creditor was required to make a gift of one-half of his security, in addition to surrendering his debtor's pledge, or crediting its value, as a condition of proving his claim. It is clear that if equity can so require the property of another to be contributed to the insolvent's creditors, subrogation will also be required and create a new claim against the fund in favor of the owner of the collateral. See Bristol County Savings Bank v. Woodward, 137 Mass. 412, 413. Where the point has been considered¹ it has been decided against the view of the learned court below. The rule is sometimes stated "that the creditor is not entitled to prove and to retain securities which if given up would go to augment the estate against which he proves".² By "given up" we understand the courts to mean "surrendered" to the owners of the securities.

The learned court below relied on its earlier decision, Alexander's Estate, 31 Pa.

4 A.2d 145

Dist. & Co. R. 17, in which a distinction between the provisions of the National Bankruptcy and the State Insolvency laws was taken. We think that on the point under consideration the two statutes mean the same thing, and, considering the nature and history of the subject, were necessarily intended to mean the same thing.

In the United Security Trust Company Case, 321 Pa. 276, 282, 184 A. 106, 109, we said: "It is true that the Equity Rule was applied in decisions (cited by appellant) beginning with Morris v. Olwine, 22 Pa. 441, and ending with Jamison & Co.'s Estate (1894) 163 Pa. 143, 29 A. 1001, dealing with assignments for the benefit of creditors. But for that rule, the bankruptcy rule was substituted by section 28 of the Insolvency Act of June 4, 1901, P.L. 404 (39 P.S. §§ 88-90)." The Insolvency Act applied only to cases within its provisions and in subordination to the federal Bankruptcy Law; but equity, whether administered in the common pleas, or the orphans' courts, must frequently be called upon to distribute the property of insolvents in proceedings not brought under the state Act of 1901 or the federal bankruptcy statutes. We therefore concluded that the so-called bankruptcy rule, to the extent incorporated by the legislature in section 28 of the Act of 1901, should thereafter be applied whenever equity distributed an insolvent's estate.

The...