People v. E. Remington & Sons (In re Ilion Nat. Bank)
| Decision Date | 03 June 1890 |
| Citation | 24 N.E. 793,121 N.Y. 328 |
| Court | New York Court of Appeals Court of Appeals |
| Parties | PEOPLE v. E. REMINGTON & SONS. In re ILION NAT. BANK. |
OPINION TEXT STARTS HERE
Appeal from supreme court, general term, fourth department.
This is an appeal by the receivers of E. Remington & Sons, an insolvent corporation, from an order of the general term affirming an order of the special term which overruled their exceptions to the report of a referee upon the claim of the Ilion National Bank, a creditor. The defendant corporation was proceeded against by the people in an action for its dissolution on the ground of insolvency. Receivers were appointed, and a reference ordered to take proof of claims. The Ilion National Bank, this respondent, was a creditor to a large amount, and, as collateral security for the payment of the indebtedness to it, had received pledges of properties and securities. It made proof of its full claim against the insolvent corporation on the indebtedness theretofore created. The receivers objected that there should be deducted from the proof of claims the sums already realized by the respondent from the collateral securities, and the value of the securities still held, and that the claim should be allowed for the balance only; but the referee allowed and reported the claim at the full amount, without regard to the securities, or the sums realized therefrom.
Wm. Kernan, for appellants.
A. M. Mills, for respondent.
GRAY, J., ( after stating the facts as above.)
The only question presented for our consideration and determination by this appeal is whether the creditor of this insolvent corporation was entitled to prove and receive a dividend upon the full amount of the debt due from the insolvent estate, or whether the receives, as the personal representatives of the insolvent, could reduce the claim of the creditor, for the purposes of a dividend, by compelling a deduction from the amount of the proved debt of the value of collateral securities, or of any proceeds thereof. There are conflicting decisions upon this question in the courts of the United States; and in England, if we look back up the current of opinions, we may find some differences in views. But the preponderance of authority is in favor of the view that the creditor has the right to prove and have dividends upon his entire debt, irrespective of the collateral security. In this state the precise question is without any controlling precedent. Two cases decided by the special term of the supreme court are to be found in the Reports which perhaps bear upon the question. They arose under general assignments for the benefit of creditors, and are conflicting. It may be said therefore, that the field is open to us for review and determination. I think we must conclude that the view which I have mentioned as having the weight of authority in its favor is the one best according with the principles and established rules of equity jurisprudence, to which department of legal science the question pertains. Some confusion of thought seems to be worked by the reference of the decision of the question to the rules of law governing the administration of estates in bankruptcy, but there is no warrant for any such reference. The rules in bankruptcy cases proceed from the express provisions of the statute, and they are not at all controlling upon a court administering in equity upon the estates of insolvent debtors. The bankrupt act requires the creditor to give up his security in order to be entitled to his whole debt; or, if he retains it, he can only prove for the balance of the debt after deducting the value of the security held. The jurisdiction in bankruptcy is peculiar and special, and a particular mode of administration is prescribed by the act. To administer, in cases, of insolvency coming within the jurisdiction of courts of equity, by analogy with the modes of bankruptcy courts, is not required; and their precedents are not to be deemed as causing any change in the rules established by courts of equity for the marshaling and distribution of assets.
Suggestion is also made of a principle of equity as controlling upon the question. It is that, where the creditor has two funds of his debtor to which he can resort for payment, and another creditor has a lien on one fund only, equity will compel a resort by the first creditor to that fund to which the lien of the other does not extend. But that is not exactly this case; nor is the principle, if it were, decisive. The author whose statement of the principle is quoted from has limited its application to such cases where to compel the first creditor to resort to the one fund will not operate to his prejudice, or trench upon his rights. 1 Story, Eq. Jur. § 633. Judge Story assigns as a reason for the application of the principle that, by so compelling the creditor to satisfy his claim out of one of the funds, no injustice is done to him in point of security of payment. The learned author's reason negatives the proposition that a secured creditor shall lose or forego any advantage which he may have by reason of his security, and through which the fullest satisfaction of his debt can be obtained. In Evertson v. Booth, 19 Johns. 486, SPENCER, C. J., held with reference to the equitable rule invoked by the appellants here, that it is not to be enforced if it will ‘in the least impair the prior creditor's right to raise his debt out of both funds,’ and he emphatically remarked: ‘I know of no principle of equity which can take from him any part of his security until he is completely satisfied.’ Where could any such principle have its origin? The agreement between the debtor and the creditor was that a debt should be paid. That debt is a definite quanity, and nothing less than its full amount can be said to be the debt. It is not altered or affected in its amount because the creditor may hold some collateral security. That is not a factor of the debt, but merely an incident...
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