Mr. Chief Justice Fuller,'
after making the foregoing statement,- delivered the opinion of the court.
The errors assigned question the conclusions of law.
We need spend no time on the objection that the referee’s order did not amount to the rejection of the claims: What the referee said was: “As the proof now stands, I shall, therefore, decline to allow either claim as established against the estate or.estates.”
The District Judge recited the action of the referee as disallowing both claims, and entering “an order prescribing the method for ascertaining the value of such policies,” and concluded: “The orders of the referee disallowing the claims are approved and affirmed.” 134 Fed. Rep. 102, 104. And entered an order accordingly.
The Circuit Court of Appeals held “ that the order appealed from was, -in substanee and effect, a rejection of the claims,” and said: “The bank insisted that its claims were for a definite
amount, the amount stated in its proofs of- debt less the sum which it had already derived from the sale of the securities. The decision not only disallowed these claims, but left the hank remediless, unless it should consent to allow a different reduction.5’
We think it perfectly clear that the policies did not belong to the partnership estate. 'They insured the life of J. M; Mer-tens, and were payable, one to him or his legal representatives, and the other to his wife or children, or to him In the event of their death before .his. And they had been assigned to the bank by him individually and the members of his -family, as early as March, 1901, as -collateral security, -as well as by the collateral notes before mentioned. The fact that Mertens individually -was the owner was in effect conceded, and the objections to .the -Claims raised no issue in regard -to it. That the partnership on.-some' occasion may have pledged the policies in conjunction with Mertens’ separate individual pledge had no special significance.
The notes provided that the holder might apply the proceeds of a sale to “pay one, or more, or all. of the liabilities due it, as it shall -deem proper, whether due or not.” And it had the right according to the settled rule in equity and in courts of bankruptcy to apply the proceeds of the collateral in extinction of the individual debts. If the sale was a good and valid sale and the value of the policies was properly liquidated thereby, and applied on the individual indebtedness, it follows that the.claim against the partnership should have been allowed in full.
And also the claim against the individual estate of Mertens for the balance, after deducting the $10,250 and the $6,000.
The contracts of pledge were made, executed and- to be performed in the State of New York, and the rights of the parties were governed by the law of that State. No preference under the bankruptcy act was alleged or proved, nor was there any allegation or proof that th¿ pledge of the securities was in fraud of the rights of the creditors or trustee. The
questions of the .extent and validity of the pledge were local questions, and the-decisions of the courts of New York are to be followed by this court.
York Manufacturing Company
v. Cassell, 201 U. S. 344;
Thompson
v.
Fairbanks,
196 U. S. 516, 522;
Humphrey
v. Tatman, 198 U. S. 91. Here there was an absolute power of sale coupled with an interest. The bank had had both title and possession of the policies for a period of more than two; years- before the filing of the petition. It had a valid . debt against both the copartnership and individual estates, which- is not questioned. It could, therefore,, make a- safe under the power granted, and transfer title in its own name-.. Numerous1, decisions of the Court of Appeals of the State off New York sustain contracts of pledge waiving the right of the- pfedgor to- exact strict performance of the eomimon; law duties of'a. pledgee1. In the absence of’ fraud, the pledgee may buy at. M® own- safe; held without notice, or demand, or- advertisement, when power so1 to do is expressly granted by the pledgor.
Baker
v.
Drake,
66 N. Y. 518;
Williams v
.
Trust Company,
133 N. Y. 660;
Toplitz
v.
Bauer,
161 N. Y. 325. And see
National Bank v. Baker,
128 Illinois, 533;
McDowell
v.
Chicago Steel Works,
124 Illinois, 491;
Farmers’ National Bank
v.
Venner, 78
N. E. Rep. 540.
It must be remembered that the Circuit Court of Appeals found that there was no fraud in fact in the sale. In respect of that Judge Wallace, delivering the opinion, said:
“The court below regarded the sale made by the bank as a fraudulent sale. There was no evidence of fraud, unless the facts which have been referred to justify the inference of fraud. ' We are at a loss to understand how fraudulent conduct can justly be imputed- to a pledgee when it appears that whatever was done in executing the power -of sale was done "in full compliance with the -terms of the pledge, and when there is no evidence that any unconscionable advantage was taken of the pledgor or his creditors. Doubtless the pledgee cannot avail himself of his authority, however un.limited, to sacrifice the property wantonly,' or to purchase
it himself at a Trataafem'so inadequate as to sqggest a fraudulent purpose. If the ’waHraróem in this ease was unfair, the ¡burden was un the trustee to prove the fast,1”
The trustee 4id not «offer to prove that «others were prepared to purchase and might have doñea© Ihut for want «of anforanation, or that the policies had a greater value than was realized .at the sale, or that he was prepared to redeem the pledge for the benefit of the estate, nor did he offer to do so. There was nothing in the evidence tending to show a wanton sacrifice or an intention to buy in at so inadequate a price as to justify the inference of a fraudulent purpose.
Counsel for the trustee contends that the policies were worth more than was obtained at the sale, because the bank’s agent, after having borrowed on the strength of the policies the exact amount of his bid immediately after the sale, subsequently borrowed thereon $2,622.75; and also that from the terms of the $50,000 policy it appeared that on the completion of the Tontine dividend period, February 15, 1909, the assured had the privilege to withdraw in cash $18,823, and in addition the surplus which might then be apportioned. And counsel called attention in' his brief filed herein, February .26, 1907, to the case of
Hiscock, Trustee,
v.
Mertens
then pending in this court as demonstrating that the $50,000 policy was worth. more than was realized at the sale.
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Mr. Chief Justice Fuller,'
after making the foregoing statement,- delivered the opinion of the court.
The errors assigned question the conclusions of law.
We need spend no time on the objection that the referee’s order did not amount to the rejection of the claims: What the referee said was: “As the proof now stands, I shall, therefore, decline to allow either claim as established against the estate or.estates.”
The District Judge recited the action of the referee as disallowing both claims, and entering “an order prescribing the method for ascertaining the value of such policies,” and concluded: “The orders of the referee disallowing the claims are approved and affirmed.” 134 Fed. Rep. 102, 104. And entered an order accordingly.
The Circuit Court of Appeals held “ that the order appealed from was, -in substanee and effect, a rejection of the claims,” and said: “The bank insisted that its claims were for a definite
amount, the amount stated in its proofs of- debt less the sum which it had already derived from the sale of the securities. The decision not only disallowed these claims, but left the hank remediless, unless it should consent to allow a different reduction.5’
We think it perfectly clear that the policies did not belong to the partnership estate. 'They insured the life of J. M; Mer-tens, and were payable, one to him or his legal representatives, and the other to his wife or children, or to him In the event of their death before .his. And they had been assigned to the bank by him individually and the members of his -family, as early as March, 1901, as -collateral security, -as well as by the collateral notes before mentioned. The fact that Mertens individually -was the owner was in effect conceded, and the objections to .the -Claims raised no issue in regard -to it. That the partnership on.-some' occasion may have pledged the policies in conjunction with Mertens’ separate individual pledge had no special significance.
The notes provided that the holder might apply the proceeds of a sale to “pay one, or more, or all. of the liabilities due it, as it shall -deem proper, whether due or not.” And it had the right according to the settled rule in equity and in courts of bankruptcy to apply the proceeds of the collateral in extinction of the individual debts. If the sale was a good and valid sale and the value of the policies was properly liquidated thereby, and applied on the individual indebtedness, it follows that the.claim against the partnership should have been allowed in full.
And also the claim against the individual estate of Mertens for the balance, after deducting the $10,250 and the $6,000.
The contracts of pledge were made, executed and- to be performed in the State of New York, and the rights of the parties were governed by the law of that State. No preference under the bankruptcy act was alleged or proved, nor was there any allegation or proof that th¿ pledge of the securities was in fraud of the rights of the creditors or trustee. The
questions of the .extent and validity of the pledge were local questions, and the-decisions of the courts of New York are to be followed by this court.
York Manufacturing Company
v. Cassell, 201 U. S. 344;
Thompson
v.
Fairbanks,
196 U. S. 516, 522;
Humphrey
v. Tatman, 198 U. S. 91. Here there was an absolute power of sale coupled with an interest. The bank had had both title and possession of the policies for a period of more than two; years- before the filing of the petition. It had a valid . debt against both the copartnership and individual estates, which- is not questioned. It could, therefore,, make a- safe under the power granted, and transfer title in its own name-.. Numerous1, decisions of the Court of Appeals of the State off New York sustain contracts of pledge waiving the right of the- pfedgor to- exact strict performance of the eomimon; law duties of'a. pledgee1. In the absence of’ fraud, the pledgee may buy at. M® own- safe; held without notice, or demand, or- advertisement, when power so1 to do is expressly granted by the pledgor.
Baker
v.
Drake,
66 N. Y. 518;
Williams v
.
Trust Company,
133 N. Y. 660;
Toplitz
v.
Bauer,
161 N. Y. 325. And see
National Bank v. Baker,
128 Illinois, 533;
McDowell
v.
Chicago Steel Works,
124 Illinois, 491;
Farmers’ National Bank
v.
Venner, 78
N. E. Rep. 540.
It must be remembered that the Circuit Court of Appeals found that there was no fraud in fact in the sale. In respect of that Judge Wallace, delivering the opinion, said:
“The court below regarded the sale made by the bank as a fraudulent sale. There was no evidence of fraud, unless the facts which have been referred to justify the inference of fraud. ' We are at a loss to understand how fraudulent conduct can justly be imputed- to a pledgee when it appears that whatever was done in executing the power -of sale was done "in full compliance with the -terms of the pledge, and when there is no evidence that any unconscionable advantage was taken of the pledgor or his creditors. Doubtless the pledgee cannot avail himself of his authority, however un.limited, to sacrifice the property wantonly,' or to purchase
it himself at a Trataafem'so inadequate as to sqggest a fraudulent purpose. If the ’waHraróem in this ease was unfair, the ¡burden was un the trustee to prove the fast,1”
The trustee 4id not «offer to prove that «others were prepared to purchase and might have doñea© Ihut for want «of anforanation, or that the policies had a greater value than was realized .at the sale, or that he was prepared to redeem the pledge for the benefit of the estate, nor did he offer to do so. There was nothing in the evidence tending to show a wanton sacrifice or an intention to buy in at so inadequate a price as to justify the inference of a fraudulent purpose.
Counsel for the trustee contends that the policies were worth more than was obtained at the sale, because the bank’s agent, after having borrowed on the strength of the policies the exact amount of his bid immediately after the sale, subsequently borrowed thereon $2,622.75; and also that from the terms of the $50,000 policy it appeared that on the completion of the Tontine dividend period, February 15, 1909, the assured had the privilege to withdraw in cash $18,823, and in addition the surplus which might then be apportioned. And counsel called attention in' his brief filed herein, February .26, 1907, to the case of
Hiscock, Trustee,
v.
Mertens
then pending in this court as demonstrating that the $50,000 policy was worth. more than was realized at the sale. But the $2,622.75 loan covered the next ensuing premiums on the policies..with interest; and the $7,000 paid for the $50,000 policy with interest and the premiums, of February, 1904, 1905, 1906, 1907 and Í908, with interest, and the last premium, would appear to have aggregated a total cost of $21,346.50; while if resort could be properly had to the record in another case to piece out the evidence in this the opinion in
Hiscock
v.
Mertens,
decided March 25, 205 U. S. 202, states that the evidence showed that this particular policy had a surrender value of $6,574: And as to the $10,000 policy no suggestion was'made that the $3,250 was not a full price or even more, nor could there be in reason, for as Nay, J., said,
In re Mertens et al.,
131 Fed.
Rep. 972, “fit bad become a simple life policy, payable- t®> the’ wife of the assured, if living at his death; if not living, to>his children, if any; and in default of child or children to- the personal representatives of the assured. This policy- con-cededly is so conditioned and incumbered, and the interest of the' trustee therein, if any, is so remote and uncertain that it is of no practical value to the estate.” Clearly there is nothing on the face of the record to justify a charge of fraud bn account of inadequacy.
Section
-57h
provides: “The value of securities held by secured creditors shall be determined by converting the same into money according to the terms of the agreement pursuant to which such securities were delivered to such creditors or by such creditors and the trustee, by agreement, arbitration, compromise, or litigation, as the court may direct, and the amount of such value shall be credited upon such claims, and a dividend shall be paid only on the unpaid balance.”
The court was by this subdivision empowered to direct a disposition of the pledge, or the ascertainment of its value, where the parties had failed to do so by their own agreement. It is only when the securities have not been disposed- of by the creditor in accordance with- his contract that the court may direct what shall be done in the premises. Of course where there is fraud or a proceeding contrary to the contract the interposition of the court might properly be invoked.
According to the terms, of the bankrupt act, the title of the bankrupt is vested in the trustee by operation of law as of the date of the adjudication. Act of 1898, § 70,
a. e.
By the act of 1867, it was provided that as soon as an assignee was appointed and qualified the judge or register should, by instrument, assign or convey to him all of the property of the bankrupt, and such assignment shall relate back to the commencement of the proceedings in bankruptcy, and by operation of law shall vest the title to such estate, both real and personal, in the assignee.” But § 70a of the act of 1898 omits the provision that the trustee’s title “shall relate back to the com
mencement of the proceedings in bankruptcy,” and explicitly states that it shall vest “as of the date he was adjudicated a bankrupt.” When the petition in the present case was filed the bank had a valid lien upon these policies for the payment of its debt. The contracts under which they were pledged were valid, and enforceable under the laws of New York where -the debt was incurred and the lien created. The bankruptcy act did not attempt by any of its provisions to deprive a lienor of any remedy which the law of the State vested him with; on the other hand, it provided, §
67d:
“Liens given or accepted in good faith and not in contemplation of or in fraud upon this act, and for a present consideration, which have, been recorded according to law, if record thereof was necessary in order to impart notice, shall not be affected by this act.”
Mueller
v.
Nugent,
184 U. S. 1, is not to the contrary, as explained in
York Manufacturing Company
v.
Cassell,
201 U. S. 344.
Judgment affirmed.