Mechanics Loan & Trust Co. v. American Exchange National Bank

Moran, P. J. James W. Sykes made a voluntary assignment for the benefit of his creditors, which was duly filed, and the County Court proceeded to administer the insolvent estate. Claims were proved against the estate to the amount of $265,885.92, and the assets which came to the hands of the assignee amounted to $47,787.68. Appellant’s claim was allowed for $92,253.19, and the claim of appellee, the American Exchange National Bank, for $106,800, and of appellee, the Canadian Bank of Commerce, for $27,400, were filed. It appeared on taking the proofs of said claims, that appellees each held certain warehouse receipts for timothy seed, which had been issued to Sykes, and had been indorsed by him to the appellee banks respectively) as collateral security to the notes of Sykes held by the said banks. Certain motions and counter motions were made by the parties and various orders were entered by the court, which, in the view we take of the case, it is unnecessary to allude to further than to say the result was, that each of the appellees realized on a portion of its collaterals and credited the amount so obtained on its claim, and the claim of the American Exchange National Bank, so reduced, was allowed by the court at $69,241.94, and the claim of the Canadian Bank of Commerce at $15,848.51. At the time of such allowance of such claims, the American Exchange Bank held a balance of collateral undisposed of which was then worth at the market value $56,771.65, and the Canadian Bank held like collateral of the value of $12,236.49. Appellant moved the court for an order directing appellees to realize on such balance of collateral held by them, but the court refused such order and entered an order finding that it was for the interest of all the creditors of the insolvent estate that said banks have leave to sell the collateral security held by them without prejudice to any of their rights, the proceeds of such sales not to be applied upon the indebtedness of Sykes to them, but to be held by them in all particulars as the collateral itself was then held, and it was so ordered. Thereupon the American bank sold its said collaterals and received in money over all expenses $55,851.76, and the Canadian Bank sold and obtained the sum of $12,242.24. Shortly thereafter the matter of distribution by the assignee came on to be settled by the court, and appellant moved the court to direct the assignee to pay a dividend upon the amount of appellees’ claims only, which should remain after deducting the net proceeds of said collaterals, which net proceeds were then in the hands of said appellees respectively; the court refused to so direct) but ordered the assignee to pay to said appellees upon the amount of their said claims as allowed, the same dividend as should be paid to other creditors of the estate. This is the order chiefly complained of by appellant and it is contended by it that the security having been turned into cash, this case is on this point taken out of the rule as established in In re Bates, 118 Ill. 524. It is, among other things, clearly laid down in that case that the court has no power to compel the holder of the security to realize upon the same. The County Court then properly refused to direct appellees to sell the seeds held by them and credit the proceeds on their respective claims. It clearly appears from the record that appellees, in selling the balance of the seeds held by them, did so on the faith of the order of court that they might do so without prejudice to their rights, and might hold the proceeds as they held the collateral. The sale was for the interest of all the creditors and to prevent the collaterals from being eaten up by warehouse charges and other expenses. We think the fact that the collaterals were turned into cash under such circumstances does not make this case an exception to the doctrine announced by our Supreme Court. The decisions in Iowa and Mew York are in support of appellant’s contention, but the rule as announced in those States is not followed by our Supreme Court, but rather the doctrine which obtains in Pennsylvania as held in Morris v. A1wine, 22 Pa. St. 441, cited with apparent approval In re Bates, where the case is stated as one “of distribution under an assignment for the benefit of creditors, and a creditor by bond and by mortgage was held entitled to a pro rata dividend on his whole claim, even though he had collected the greater part of it out of the mortgaged property, the amount collected and the dividend together not being sufficient to satisfy the debt. He was not restricted to a dividend on his claim, as reduced by the proceeds of the mortgage.” The order appealed from must he affirmed. Order affirmed. Gaenett, J.3 took no part in the consideration of this case.