Flower v. Greenebaum

50 F. 190

• Court: U.S. Circuit Court for the Northern District of Illnois
• Decided: June 15, 1880
• Status: Published

Opinion

Blodgett, District Judge.

It is now insisted by the defendant that the bank assented by its action, or the action of its representative, at the creditors’ meeting, to be considered and treated as a fully secured creditor in the composition proceedings; that by voting for the composition on its unsecured debts it misled, or may be held to have misled, the defendant into the belief that it relied solely for payment of the notes in question on the security which it held for the notes, and that it ought not be allowed to collect the balance of these notes, after exhausting the security, from the defendant; that, if defendant had understood at the time of the meeting that the bank would claim any balance on these notes, he could not have made the offer to his creditors which was made and accepted; that the bank could have had the value of these notes above the security estimated by the court at the time of the composition proceedings, and, having neglected to do so, it cannot now be permitted to collect such balance, but must be held to have elected to rely only on its security for payment of those notes. The plaintiff claims that the bank was not bound to have the securities valued, and that, if defendant wished to ascertain what balance would be due after exhausting the securities, he could have had the securities valued on application to the court for that purpose. The question thus presented is not a new one.

In the late case of Cavanna v. Bassett, 9 Biss. 435, 3 Fed. Rep. 215, heard before Judge Dyer at the present term of this court, the same point arose, and it was there held by the learned judge that- a secured creditor “could not be compelled to surrender her security, and come in and prove her claim, nor was it incumbent on her to have her security valued, and then to make proof of any balance; nor should her failure to do this be taken as evidence that she intended to rely wholly for payment of her demand upon her security.” The learned judge further said: “The bankrupts knew, or should have known, that there was a liability that the security would not pay the indebtedness. They were chargeable with notice that such a contingency might arise, and, if they desired to put complainant in a position where the composition proceedings would operate upon her, they might have applied to the court for proceedings compulsory in their nature, to have the security valued. Not having done so, there remained a liability that, in case the security should prove inadequate, complainant would have the right, as to any deficiency, to compel payment of the same to the extent of the percentage paid to unsecured creditors under the composition.” And the cases of Paret v. Ticknor, 16 N. B. R. 315, decided by Mr. Justice Miller and Judge DiLLon, and Ex parte Hodgkihson, 1 Ch. DiV. 702, are to the same effect.

The learned circuit judge of this circuit also held the same principle in Re Nagel¹ on review from the district court. A judgment will therefore be entered for the plaintiff for the balance due on these notes, (ionditioned that the sanio shall ho satisfied by the payment of 25 per cent, of the amount due on said notes, after deducting the proceeds of the collaterals; treating the deduction as made at the time the composition was confirmed.

1 Not reported