In re Assignment of Sawyer

Barrett, J.: The assignee makes two points against the claim of the Tennessee bank: First, that it is estopped from making any claim against the [200] assigned estate, because of its hostile attitude with regard- to. -the Tennessee attachmentsecond, that if not thus estopped'it. should at least credit the amount collected under the attachment on account of its distributive share under the assignment. We do not think that the assignee’s first, point should be sustained. The. proceedings were instituted by the bank against its debtor’s property in the State of Tennessee, without knowledge on its part of the assignment. The property there attached was thus secured to the bank by the laws of its own State. By those laws the property passed to the assignee subject to the rights of the attaching creditor. The assignment itself was not attacked, nor did the Tennessee court hold that it was null and void. .All that court decided was that the attaching creditor, by its bill filed, secured a priority over the. assignee. If there had been a surplus after paying the debt of the bank, it would have gone to the assignee. . It was not, therefore.,, from ally inherent vice in the assignment that the bank prevailed; It was simply .because under section 2887 of the Revised Statutes of the State of Tennessee; then in force, the instrument did not, as against it, take effect upon the property attached, . The bank did not. originally proceed in hostility to the assignment. It knew nothing of it. When the assignee subsequently came in and claimed the attached property the rights of the. bank were already fixed. They had become so fixed without any act of the creditor in hostility to the assignment. It. cannot, be said-that the retention of rights thus acquired in ignorance of the attachment effected a hostile election. The bank was not bound to abandon its lien and, recognize the assignee’s claim to the fund under penalty of ostracism as a cestui que trust under the assignment. There was no affirmative act in hostility to the assignment, no repudiation of the trust which had been created- for its benefit. It simply permitted the law of Tennessee to take its course, asserting its right to. what that law had secured to it and reducing its lien to possession. There was nothing in this position inconsistent with the hank’s assent to the assignment when notified thereof, .and its acceptance of the assignee as its trustee thereunder. We think, however, that, the assignee’s second' point should be [201] sustained. Here we have an entirely different question. The bank now comes forward as a cestui que trust claiming its equal share of the assigned estate. What then is its position ? It has diminished the trust estate — lawfully it is true •— for its individual advantage and preference; and yet it seeks an equal share of the residue. That certainly, is not equitable. It cannot have both. It may retain what it has preferentially secured and neither the assignee nor the other creditors can complain. It had a legal right -to what it thus secured and the question on that head cannot be reopened. But, when it claims an equal share of the trust estate it must be an equal share of the entire estate, that which it would have but for the assertion of the creditor’s legal right under the laws of Tennessee. It is a mistake to suppose that the attached property was not part of the assigned estate, or that it was given to the bank by the Tennessee court because .it was not covered by the assignment. On the contrary, it clearly passed to the assignee upon the execution and delivery of the assignment. It so passed under the laws of Tennessee as well as under our laws. But although it so passed even in Tennessee as between the parties, it'failed to have that effect there as against the bank. Thus the law of Tennessee enabled the bank to obtain priority over the assignee; that is, to secure to itself a part of the assigned estate. But it certainly did not decree that the attached fund was dehors the assignment. We think that when the creditor under such circumstances comes here .and asks for its rights as a cestui que trust under the assignment it must offer to abandon its preferences, though legally .acquired, and do equity. It is just to subject it to that amount of coercion. It can have its fair share of the estate the same .as our own creditors. It ought not to have more. To effect this equitably it must make the estate whole so far as the estate has been depleted, however legitimately, by it. The estate in equity •consists of what the assignor conveyed to the assignee by the terms and intention of the assignment. The parties then settled what Avas embraced within the instrument. The law of Tennessee has not settled anything to the contrary. It has simply as against the claimant denied the instrument its legal effect with regard to a part of the assigned property. [202] The principle above stated is supported by the text writers,, and seems to be tlie established law of England. Mr. Wharton, in his Conflict of Laws,, says (2d ed. § 798) that “ a creditor who has obtained a dividend in a foreign bankruptcy, or by a foreign attachment subsequent- to the domiciliary bankruptcy, can only claim such a dividend at the domiciliary bankruptcy as will establish equality between himself and other creditors appearing before the domiciliary assignee.” For .this rule he cites many authorities, including Bonnaffe's Case (23 N. Y. 169). Mr. Wharton also gives the English rule as stated by Sir R. Phillimore (Phillimore’s International Law, vol. IV, 549), as follows: “ that if the law of the foreign State, in which the property may be, should, in violation of comity, exercise jurisdiction over the property, and by express regulation prefer the claim of the attaching creditor to the . previous assignment under the bankruptcy, the title so conveyed by the lex' rei sitm and lex fori would not be disregarded in England so as to compel the creditor, when within English jurisdiction, to refund the property so acquired; that such a creditor, however, will not be allowed to take ad/oa/itage of the English bankruptcy without fi/t'st commxmicating the benefit derived from his proceeding sin the foreign State.” (§ 389.) Judge Story (quoting from Mr. Bell’s Commentaries on Col. & For. Law) says that “ a creditor in a foreign country would not, if preferred by the laws of that country, be obliged to refund in England ; and that such creditor cannot take advantage of the bankrupt laws in England * * .* without communicating the benefit of his foreign proceedings.” (Story on the Conflict of Laws, § 423e.) The language of Lord Mansfield in Waring v. Knight, quoted by Chief Justice Eyre in Philips v. Hunter (2 H. Blackstone, 413) is terse and pointed: “If a man uses legal diligence in a foreign country and obtains a preference, it cannot be helped; but that if he afterwards comes here for a dividend he shall first refund what lie has so acquired by his legal diligence, and come in equally with the rest of the creditors, or not come in at all.” Upon both principle and authority, therefore, we* think -that the assignee’s contention upon this point is right. The order appealed [203] from should, therefore, be modified by allowing the bank its full claim at the sum of $12,039.96, and awarding to it all dividends thereupon, crediting the assignee, however, upon such dividends and as part payment thereof, with the amount of the Tennessee collection, to wit, $1,043. In all other respects the order appealed from should be reversed, with costs of this appeal to the assignee, payable out of the claimant’s dividends and to be deducted therefrom. Van Brunt, P. J., Patterson, O’Brien and Ingraham, JJ., concurred. Order modified by allowing the claim of the bank at $12,039.69, and awarding to it all dividends thereupon, crediting the assignee as part payment thereof with the amount of the Tennessee collection, to wit, $1,043. In all other respects order reversed, with costs to the assignee, payable out of the claimant’s dividends.