In re E. Bement's Sons

Ostrander, J. (after stating the facts). The disagreement of counsel as to the application here of the rule that the creditor may have dividends only upon the amount of the claim as proved, but may, out of any separate estate, held as security, realize any balance of prin [533] cipal unpaid by dividends and, also, interest upon such principal, does not require, in view of our determination of the principal question presented, any comment beyond this: The commissioner has not, in his computation, in which he applies the total sum received from collateral to the amount of the demand as proved, recognized or given any force to the rule. In other respects,'the commissioner recognized and applied the rules followed in Third Nat. Bank of Detroit v. Haug, 82 Mich. 607 (11 L. R. A. 327); Chemical Nat. Bank v. Armstrong, 59 Fed. 372, 8 C. C. A. 155 (28 L. R. A. 231); People v. E. Remington & Sons, 121 N. Y. 334 (8 L. R. A. 458); In re Bates, 118 Ill. 524; Graeffs Appeal, 79 Pa. 146; Merrill v. National Bank of Jacksonville, 173 U. S. 131, and many other like cases, if we are to consider, as upon the part of the receiver it is insisted we should do, each of the seven notes as a single demand; as if there were seven creditors, each owning a single note, instead of a single creditor owning seven notes. He did not properly apply those rules if appellant is entitled, as it contends that it is, to have dividends upon its entire demand as proved applied in reduction of the demand until the dividends, plus the sum received from collateral, extinguishes the debt, principal and interest. The argument made for the receiver, and the opinion rendered by the court, each proceeds upon the theory that only by treating each note as evidence of a separate debt can the arrangement concerning the collateral be given the effect intended by the parties and imported by the instrument of assignment; that particular collateral is, by the agreement, devoted to the security of a particular note, and when collected must be applied in payment thereof, and when paid, either by collateral or by dividends, apportioned to the particular note, the debt evidenced by the note is extinguished. In thus stating the position of the receiver, we assume that if appellant had no security for its debt, or if the collateral had been assigned to secure indebtedness generally, [534] it would be conceded, under the rule of the cases herein cited, that the commissioner should so amend his report as to merely provide for a dividend upon the demand as proven. The insolvent, when its assets were impounded, owed the appellant upwards of $35,000, evidenced by seven notes, which might have been theretofore, regardless of the fact that security had been given, enforced against the maker as a single demand. Nothing appears to be better settled by the decisions than that the effect, upon the creditor, of the taking over by the receiver of the general assets of the debtor is to substitute for the right of action, in personam, theretofore existing, a right to a proportional share of the impounded assets — a right to receive such a part thereof as its total, proved, demand bears to the total of all demands, unaffected by the fact that it holds security for a part or for all of its debt. The application of the rulé contended for by appellant is that dividends should be computed and paid upon $35,034.98; as applied by the commissioner, each $5,000 pote is made the basis for computation and payment. In practical effect, there would be no difference if the commissioner had stopped here; if he had not, as to each note, applied the collateral collected and limited the payment of the dividend to the amount of the principal remaining due after such application. It is clear that this method remits the creditor to the collateral and denies to him a share in the general assets proportioned to his entire demand. Counsel for the receiver says, in effect, that this is what the parties agreed to. We are unable to find in the form of the assignments of collateral, or in the conduct of the parties, evidence to support the idea that the creditor ever released, or agreed to forego or to waive, any interest in the general estate of the debtor. No authorities are produced, and we think no good reasons have been advanced, to support the application of the rule which has been made. Nor would it make any difference if particular evidences of indebtedness, constituting a [535] part of the total demand as proved, were otherwise, and for other purposes, extinguished. Graeff’s Appeal, supra. Before a receiver was appointed, all of the general assets of the debtor and all of the assigned collateral was a fund to be resorted to for payment of the entire demand. There has been no change except this: The debtor may now receive out. of the general assets no more than his proportional share. Until the debt is paid, in full, principal and interest, the creditor is entitled to such dividends as may be declared upon the total of the debt as proved. It is entirely immaterial to the receiver in what manner proceeds of collateral are applied, to the point when the sum of the dividends and Of collateral collected has extinguished the entire debt, principal and interest. It follows that the court below was in error in overruling the first and second exceptions to the report. An order may be entered in this court in conformity with this opinion in favor of each party appealing and remanding the record for further proceedings. Appellánts will recover costs of this appeal. Carpenter, Grant, Blair, and Hooker, JJ., concurred.