Philadelphia Warehouse Co. v. Anniston Pipe Works

HARALSON, J. — On the question presented in this case, there is a confusion of decisions in some of the States. In Massachusetts it is held, that if a creditor of an insolvent estate have a mortgage as security for and of less value than the amount of his debt, he can claim [362] from, the commissioners who administer the estate only for the difference between his debt and the value of the property mortgaged, (Amory v. Francis’ Admr., 16 Mass. 308), and in another case, the court held, that where a creditor holds a mortgage on personal'property to secure his debt, and the debtor dies insolvent, the mortgagee cannot prove his debt in full against the debtor’s estate, unless he first waive his mortgage; but, if he applies the amount of the mortgaged property towards the discharge of his claim, and a balance is left unpaid, he may prove such balance before ttie commissioners. — Farnum v. Boutelle, 13 Met. 159. In Iowa it is held, that a creditor under a general assignment for the benefit of creditors, who has a special security, may be required by the other creditors to resort to that security, and can only claim dividend upon the amount remaining unpaid, after exhausting the property on which, he has such special lien. The decision is based on the reason, as assigned, that if a creditor has two funds out of Which he may make his debt, he may be required to resort to that fund upon which another has no lien.— Wurtz v. Hart, 13 Iowa, 519. In Pennsylvania, New York, New Hampshire, Connecticut and Illinois, their courts hold, that one who has a claim against an insolvent estate of a decedent, or of one who has made general assignment for the benefit of creditors, for which claim he holds collateral security in some form, which has not been paid, in whole or in part, may be allowed to prove his whole claim as a debt against the estate, on which he will be allowed the average dividend with each of the other unsecured creditors, and not merely on the residue only, after deducting the value of the security held, which principle seems to be very generally recognized as consistent with that other principle, so well recognized, that the pledgee holds collateral securities for the payment of the pledgor’s principal obligation, and is entitled to proceed with enforcement of both the principal debt and collateral securities at the same time, and to judgment and execution, although entitled to but one satisfaction. — Colebrook on Col. Sec., § 113 and authorities ; Chapman v. Lee, 64 Ala. 483 ; Patten’s Appeal, 45 Penn. St. 151, s. c. 84 Am. Dec. 479 ; People v. Remington, 121 N. Y. 328; Moses v. Ranlet, 2 N. H. 488; Findlay v. [363] Hosmer, 2 Conn. 350; Paddock v. Bates, 19 Bradwell (Ill.) 470 ; In re Bates, 118 Ill. 524. And in Tennessee and New York, their courts have gone further and hold that the foregoing principle is the proper one, even where a part of collaterals have been collected and is in the hands of the creditor at the time he comes to prove and have his claim allowed against the insolvent estate; and they appear to approve the rule, that if the collaterals the creditor holds are more than sufficient to satisfy any difference after application of the dividends, the personal representative of the insolvent may redeem them for the benefit of his estate. — Patton’s Appeal, 45 Pa. St. 151, supra; People v. Remington, 121 N. Y. 328, supra. On the other hand, the Maryland court, in the case of a general assignment by an insolvent debtor, for the benefit of creditors, holds that the obligation of a trustee to pay a debt owing by the assignor does not depend on the state of the account between the creditor and the assignor at the time of the assignment, but at the time when payment is made ; and that, where at the time of the assignment, a debt of the assignor is secured by col-laterals which are subsequently partly paid to the creditor before a dividend on the debtor’s estate is made, such creditor is not entitled to a dividend on the full amount of the indebtedness, but only on that portion which remains, after deducting the moneys received of him from the collaterals placed in his hands to secure the debt.— Third Nat. B. of Baltimore v. Lannahan, Trastee, 66 Md. 461. This decision seems to us to be so simple, just, expeditious, and inexpensive, as to commend it for approval. The result accomplished by such a rule is just what may be accomplished by more indirect and expensive procedure, and with greater delay, in any of the States where a creditor is not required to credit his debt against an insolvent estate, at the time of proving his claim against it, with the collections on collaterals for the debt placed in his hands by the insolvent debtor. And this ruling fully accords with the views expressed by this court in the case of Gusdorf & Co. v. Ikelheimer & Co., 75 Ala. 153, where a judgment and execution creditor, holding collaterals upon which he had realized, refused to credit his debt with the proceeds, but sought to participate in another fund with, and to the exclusion [364] of, other creditors, to the full amount of his claim, without deductions for the payments made, on the score of having a prior execution lien on the fund thus sought to be' appropriated. The court among other things, and on the questions we are now considering said, that “The collaterals, the choses in action, transferred to Gusdorf & Co., were intended by the debtor, and were by them received, as a source or fund from which the debt reduced to judgment should be paid. It is true, that by taking the collaterals, the right to proceed by execution on the judgment was not intended to be delayed or postponed, and the creditor had the right to retain the col-laterals while pursuing legal remedies upon the judgment, and, if necessary to his full security and satisfaction, would not have been interfered with, or compelled to resort to the one in preference to the other. But having realized, by collections from the collaterals, the sum now in controversy, before satisfaction was obtained through the medium of the execution, that sum was by operation of law immediately applied to the satisfaction of his debt, extinguishing it pro tanto. A payment to him by the debtor of a like sum, at that instant of time, would not have been for that purpose more effectual. The source or fund from which moneys are derived, often directs and controls their appropriation. And when a creditor receives moneys, derived from sources or funds which have been devoted to particular purposes, he is without right to appropriate them to other. uses.” — 1 Am. Lead. Oases, 341; Schiffer v. Feagin, 51 Ala. 335 ; Webster v. Singley, 53 Ala. 208. There was no errer in the ruling of the court overruling exceptions to the register’s report and confirming the same. Affirmed.