In re Babcock

2 F. Cas. 289 | U.S. Circuit Court for the District of Massachusetts | 1844

STORY, Circuit Justice.

The circumstances of the case, shortly stated, are these: Kendall (the creditor), is the holder of a bill of exchange, drawn by one Leonard, agent of the Dudley Manufacturing Company, payable to his own order, upon Babcock, the bankrupt, and accepted by him, and endorsed by Leonard to Kendall. It is admitted that Babcock is a mere accommodation acceptor, but that fact was not known to Kendall at the time of his taking the bill. The bill at its maturity was dishonored, and Kendall has proved his debt in bankruptcy against the estate of Babcock; and has also brought a suit against the Dudley Manufacturing Company as drawers, and attached property of the company in that suit. The assignee of Babcock by his petition now asks the court to order Kendall to proceed in said suit, and to levy his execution upon the property so attached, and to apply the proceeds in satisfaction of the bill of exchange, and that he may not be allowed any dividend on the estate of Babcock until he has first applied the property attached in extinguishment and satisfaction of his claim. The argument in support of the prayer of the petition turns upon this, that Babcock is but a surety for file debt, that the attachment is a security held by the creditor for the debt, and that, in equity, the surety has a right to require, that the security shall be first applied in discharge of his liability pro tanto, before he is called upon to discharge his secondary obligation.

There is no doubt, that a surety for a debt may in many cases be entitled to relief by requiring the creditor to proceed against the principal. But this is ordinarily limited to cases where his character as surety stands confessed upon the face of the instrument itself; and also where he offers to indemnify the creditor in his proceedings against the principal, and also offers to pay whatever the principal may fail to pay under those very proceedings. This is the common course, where the surety seeks, by a bill against the creditor and the principal,' to compel the latter to exonerate the surety from losses which may otherwise be sustained by him by the delays and forbearance of the creditor in enforcing his debt. See 1 Story, Eq. Jur. § S27, and cases there cited; 2 Story, Eq. Jur. §§ 730, 849. Upon a similar ground, if the creditor in the case of the bankruptcy of the principal has not proved liis debt against him, but declines to do so, a court of equity will, upon a bill filed by the surety, compel the creditor to prove his debt in bankruptcy, and give the surety the benefit thereof; but then, in such a case, the relief is granted upon the terms, that the surety brings the amount due into court. Beardmore v. Cruttenden, 1 Cooke, Bankr. Law, 211; 1 Deac. Bankr. Laws, (Ed. 1827,) p. 291; Ex parte Rushforth, 10 Ves. 409, 414; Wright v. Simpson, 6 Ves. 734. And if the creditor has himself already proved his debt in bankruptcy, the surety will have a right upon payment of the debt to stand in equity as substituted to the rights of the creditor, and will be entitled to the dividends. But a person may be a surety so far as regards the principal, and yet not be entitled to hold that character in respect to the creditor. Thus, for example, in the case of a bill of exchange, an accommodation acceptor for the drawer is to be deemed the principal and primary debtor, as to the holder of the bill, and it will nSake no difference generally in cases of this sort, whether he is known to be an accommodation acceptor or not; and yet in respect to the drawer he is to be treated to all intents and purposes as a mere surety. Ex parte Ryswicke, 2 P. Wms. 89; Ex parte Marshal, 1 Atk. 129; Ex parte Matthews, 6 Ves. 283; Ex parte Atkinson, 1 Cooke, Bankr. Law, p. 210; Deac. Bankr. Law, pp. 253, 254; Id. (Ed. 1827,) p. 291; Ex parte Rushforth, 10 Ves. 409, 414. So that it is not safe in all cases to reason, that a person, who is in fact a surety, quoad the principal, is to be treated as a surety throughout in regard to the creditor. That may and usually does turn upon very different considerations. See U. S. v. Cushman, [Case No. 14,908;] Berg v. Radeliffe, 6 Johns. Ch. 302; Hollier v. Eyre, 9 Clark & F. 1, 4, 5. Now, upon the known principles of courts of equity, acting in bankruptcy, the holder of a bill of exchange is entitled to prove his debt in bankruptcy against the drawer, the payee, and the acceptor respectively, if they have all become bankrupts, and to take a dividend against the estates of each until he has been paid his full debt. If one of the parties only is bankrupt, the creditor is still entitled to pi-Qceed against the other, at law, until he has obtained satisfaction. It makes no difference in the case, whether the bill is an accommodation bill or not. This is sufficiently apparent from the cases of English v. Darley, 2 Bos. & P. 62; Ex parte Bank of Scotland, 19 Ves. 310; Ex parte Rushforth, 10 Ves. 410; Ex parte Reed, 3 Deac. & C. 481; and others cited in 1 Deac. Bankr. Laws, (Ed. 1827,) 239, 255.

In relation to the point of the creditor’s having collected securities in his hands for the payment of the debt, it is doubtless true, that sureties are entitled upon the discharge or payment of the debt by themselves to have the benefit of those securities. But in bankruptcy a distinction is taken between the case of a security given to the creditor by the bankrupt himself of his own property, and the case of a security of a third person transferred to the creditor by the bankrupt, or otherwise in his hands. In the former case the creditor is not allowed to prove his debt against the bankrupt, unless he surrenders up the security, or it is sold with his consent, and then he may prove for the residue of his debt, which the security when sold does not discharge. In the latter case he may prove his debt in bankruptcy without surrendering the security of the third person which he holds, and may, notwithstanding such proof, proceed to enforce his security against such third person, provided, however, he does not take, under the bankruptcy and the security, more than the full amount of his debt. This distinction was maintained in Ex parte Bloxham, 6 Ves. 449; Ex parte Crossley, 3 Brown, Ch. 237; and Ex parte Parr, 18 Ves. 63.

From the principles, which have been stated, admitting the attachment to be a security, and the bankrupt to be a mere accommodation acceptor, it is clear, that the creditor has a right to proceed against the bankrupt for his debt in bankruptcy, and also against the other parties to the bill, under his attachment, until he has recovered the full amount of his debt; for it is not a security given by the bankrupt of his own property, but is a security attained by the creditor against other parties to the bill by a proceeding in invitum. I give no opinion, what is the light in which this attachment is to be viewed in respect to the present parties—whether as a security, or as a .mere remedial process to enforce payment of the debt against the drawers. In either view, so far as the present petition is concerned, the result must be the same. The most, that the assignee is entitled to, is to have the aid of the court in having the attachment suit.carried on to its proper conclusion, for the benefit of the bankrupt’s estate as far as regards any surplus, which shall remain after the creditor has received from the' dividends in bankruptcy and under the attachment the full amount of his debt. The creditor is not bound to pursue the attachment suit at his own expense, unless he choose so to do; but he is bound, if he does not choose to carry it on upon his own account, to allow the assignee to carry it on for the benefit of the bankrupt’s estate at the expense thereof. If the attachment suit is proceeded in, and any money is received under it, the creditor will be entitled to receive so much thereof as, with the dividends received, will cover the full amount of his debt and costs; the surplus will belong to the estate of the bankrupt. If the creditor declines to proceed farther, all the future costs must be borne by the assignee. If the creditor chooses to proceed in the suit, the future costs in the suit must be borne by the creditor and the assignee, according to tlieir respective interests in, or benefits derived from the suit.

[NOTE. For other cases involving the estate of this bankrupt, see In re Babcock, Case No. 697; Ex parte Winsor, Id. 17,881; and Winsor v. Kendall, Id. 17,886.]

What I shall order, therefore, upon the present petition, is, that the creditor shall forthwith make his election whether he will proceed in the attachment suit upon his own account or not;—That if he elects to proceed therein, then he shall be required to proceed therein under the order and discretion of the court, as it shall award from time to time; and that, if he shall obtain payment therein, and levy upon any property, he shall be entitled to receive from the proceeds, if sufficient, the full amount of his debt and costs —deducting therefrom the dividends received from the bankrupt’s estate, and the surplus to be paid over to the assignee. If the creditor shall decline to proceed in said suit, then he shall authorize and allow the same to be carried on by the assignee at the expense and for the benefit of the bankrupt’s estate; and that out of the property or money which shall be obtained under and in virtue of the suit, he shall, after the expenses ^hereof are deducted, be entitled to receive the full amount of his debt, beyond the dividends received by him, out of the proceeds, if sufficient, and the surplus, if any, shall belong to the assignee for the benefit of the bankrupt’s estate. And either party shall be at liberty to apply to the court from time to time for further directions in the premises.