Rierson v. Hanson

• Decision Date: 27 January 1937
• Docket Number: 543.
• Parties: RIERSON v. HANSON et al.
• Court: North Carolina Supreme Court

189 S.E. 502

211 N.C. 203

RIERSON v. HANSON et al.

No. 543.

Supreme Court of North Carolina

January 27, 1937

Appeal from Superior Court, Mecklenburg County; J. W. Pless, Jr. Judge.

Action by Bertha T. Rierson, administratrix of the estate of W. P Rierson, deceased, against E. J. Hanson and others under Declaratory Judgment Act, to obtain advice in settlement of estate, and to determine a controversy between secured and unsecured creditors. From an adverse judgment, the Massachusetts Bonding & Insurance Company appeals.

Affirmed.

Under chancery rule, secured creditor is allowed to receive pro rata dividend on basis of its full claim before resorting to its security, and under bankruptcy rule secured creditor must first exhaust its security and then prove its claim for any balance still remaining or unpaid.

Mortgagee of realty of insolvent intestate held required to exhaust mortgage security under application of the bankruptcy rule and then prove claim for any balance, rather than receive pro rata dividend with unsecured creditors on basis of full claim before resorting to mortgage security under application of the chancery rule.

Civil action brought by administratrix under Declaratory Judgment Act, chapter 102, Pub.Laws 1931, to obtain advice in settlement of estate, and to determine controversy between secured and unsecured creditors.

The facts are these: Plaintiff is administratrix of the estate of W. P. Rierson, late of Mecklenburg county, who died intestate and insolvent in July, 1934, leaving unsecured debts of approximately $8,500, and one note of $4,500, secured by deed of trust on real estate worth less than the amount of said debt. The Massachusetts Bonding & Insurance Company is now the holder of said note and deed of trust. The estate consists of approximately $7,000 and the encumbered real estate, which has not yet been sold. The widow makes no claim for dower.

It is the contention of the secured creditor that it should be allowed to prove and receive pro rata dividend on the basis of its full claim before resorting to its security, while the petitioner and the unsecured creditors contend that the secured creditor should first be required to exhaust its security and then prove its claim for any balance still remaining or unpaid.

There was judgment declaring that the secured creditor should "first exhaust the security which it holds and should then be permitted to file with the Administratrix herein a claim against the general assets of the estate only for the balance remaining due after the said security has been applied on the said secured claim," from which the Massachusetts Bonding & Insurance Company appeals, assigning error.

J. F. Flowers and J. Louis Carter, both of Charlotte, for appellant.

McDougle & Ervin, of Charlotte, for plaintiff appellee.

Guthrie, Pierce & Blakeney, of Charlotte, for all other appellees.

STACY Chief Justice.

Several lines of thought abound among the decisions on the question presently presented. The position of the secured creditor is supported by what is known as the "chancery rule," while that of the unsecured creditors is favored by what is generally denominated the "bankruptcy rule." The subject is exhaustively treated in Merrill v. Bank, 173...