ways been to require a creditor not fully secured to realise his security, and prove only for what remains of his debt above the value of the security.1

The singular part of this diversity of practice is that both rules were adopted by courts of equity in cases really analogous.

§ 404. The Rule in Bankruptcy is now more generally adopted. -The courts of this country approached this subject from the equitable side, because they had no general bankrupt laws, and some of them adopted the rule in bankruptcy, and others the general rule of courts of equity. Judge Story, in administering the bankrupt law of 1841, unhesitatingly adopted the practice in bankruptcy. This practice deprives the secured creditor whose security is not equal to his debt of a part of what the

Nat. Bank of Jacksonville, 173 U. S. 131, where the rule was applied in winding up an insolvent national bank.

1 Ex parte Wardell, Cooke, 8th ed., 206; Snee v. Prescot, 1 Atk. 245, 251; Ex parte Twining, 1 M. D. & De G. 691; Ex parte Sheppard, 2 M. D. & De G. 431; Ex parte Cooper, 3 M. D. & De G. 717; Ex parte Manchester, etc. Banking Co., L. R. 18 Eq. 249; Ex parte Spyer, 1 De G. J. & S. 318; Re Savin, L. R. 7 Ch. 760; Ex parte King, L. R. 20 Eq. 273. See dissenting opinion of Gray, J., in Merrill v. Nat. Bank of Jacksonville, supra. [A creditor cannot add interest after the date of the receiving order to his debt and apply his security to that. Re Bonacino, 1 Manson, 59.]

2 Amory v. Francis, 16 Mass. 308; Dickson v. Chorn, 6 Iowa, 19; Knowles, Petitioner, 13 R. I. 90; Wurtz v. Hart, 13 Iowa, 515; Farnum v. Boutelle, 13 Met. 159; Int. Trust Co. v. Marble Co., 63 Vt. 326; Pattberg v. Pattberg, 55 N. J. Eq. 604; Swedish Bank v. Davis, 64 Minn. 250; Wheat v. Dingle, 32 S. C. 473; Third Nat. Bank v. Lanahan, 66 Md. 461; Union Bank v. Mechanics' Bank, 80 Md. 371; In re Frasch, 5 Wash. 344; In re Harvey (Cal.), 32 Pac. 567; State v. Bank (Neb.), 58 N. W. 976.

3 See a learned opinion in Jervis v. Smith, 7 Abb. Pr. N. s. 217; Keim's Appeal, 27 Penn. St. 42; Miller's Appeal, 35 Penn. St. 481; Patton's Appeal, 45 Penn. St. 151; Moses v. Ranlet, 2 N. H. 488; Findlay v. Hosmer, 2 Conn. 350; Logan v. Anderson, 18 B. Mon. 114; Allen v. Danielson, 15 R. I. 480, overruling Knowles, Petitioner, 13 R. I. 90; People v. Remington, 121 N. Y. 328; Re Ives, 25 Abb. N. C. 63; Third Nat. Bank v. Haug, 82 Mich. 607; Matthews v. Trust Co., 52 Fed. Rep. 687; Kellogg v. Miller, 22 Ore. 406; Brown v. Merchants' Bank, 79 N. C. 244; Furness v. Union Bank, 147 Ill. 570; Citizens' Bank v. Patterson, 78 Ky. 291 (this was a voluntary assignment; the law as to insolvency is different; Spratt v. First Nat. Bank, 84 Ky. 85); Lloyd v. Western Bank, 30 Weekly Law Bull. 165; First Nat. Bank v. Comm. Bank, 151 Ill. 308; Furness v. Union Bank, 46 Ill. App. 522; N. Y. Security & Trust Co. v. Lombard Co., 73 Fed. Rep. 537; Wheeler v. Walton, 72 Fed. Rep. 966; Merrill v. Nat. Bank of Jacksonville, 173 U. S. 131.

4 Re Babcock, 3 Story, 393, Fed. Cas. 696; Re Grant, 5 Law Reporter, 303, Fed. Cas. No. 5690.

debtor had given him. It is, however, as I have said, a very ancient practice in bankruptcy, that a creditor, as a learned judge has expressed it, shall not have the whole of a part, and, at the same time, a part of the whole. It is the law of France; it has now been adopted by statute in England for all cases;1 and in many of the States of the Union in administrations of the estates of deceased persons; and is to be considered the prevailing doctrine at the present time. No statute, so far as I know, has ever enacted the old rule of equity, though many have repealed it.

§ 405. Law of 1867.-The Statute of 1867, § 20 (14 Stats. 527), following the practice established by the courts of bankruptcy, declared that a creditor who had a mortgage, pledge, or lien, upon the property of the bankrupt, for securing the payment of a debt owing to him from the bankrupt, should be admitted as a creditor only for the balance of his debt after deducting the value of his security, to be ascertained by agreement between him and the assignees, or by a sale to be made as the court should direct; or he might release his claim to the property and prove his whole debt. If the property was not so sold, released or delivered up the creditor should prove no part of his debt.

Under the statute of 1867, if a sale of security had been made in good faith before the appointment of the assignees, in pursuance of a power given by the contract, or afterwards with the consent of the assignees, a literal compliance with the statute by applying to the court beforehand was not considered essential, but several of the courts held that they could confirm the sale nunc pro tunc.2

In Massachusetts the security held by a creditor of a deceased insolvent may be valued by agreement with the ad

1 Judicature Act, 1875, § 10; Re Coal Consumers' Assn., 4 Ch. D. 625, per Malins, V. C.; Re Knott, 7 Ch. D. 549, note.

2 Lee v. Franklin Inst. Sav. 3 N. B. R. 218, Fed. Cas. No. 8188; Re Moller, 8 Ben. 526, Fed. Cas. No. 9699, affirmed 14 Blatch. 207, Fed. Cas. No.

9700; Bradley v. Adams Exp. Co., 3 Fed. Rep. 895. See Re Grinnell, 7 Ben. 42, Fed. Cas. No. 5830; and see Re Grinnel, 9 N. B. R. 137, Fed. Cas. No. 5829; Re Herrick, 17 N. B. R. 335, Fed. Cas. No. 6421; Re Miller, 19 N. B. R. 78, Fed. Cas. No. 9555; Haverhill Loan Assn. v. Cronin, 4 Allen, 141.

ministrator, and in case of living insolvents by agreement with the assignee, but in the latter case a sale must be ordered by the court and the consent of the assignee is not enough; but where the creditor offered to rescind the sale if the court of bankruptcy should require it and resell under its orders, the requirements of the statute were held to have been satisfied.2 Where a second mortgagee had received part payment from the surplus proceeds of a sale made under the first mortgage, he could prove.3

§ 406. Policy on Life. Though a policy upon the bankrupt's life for security of his debt is not a mortgage, pledge, or lien upon his property, it must be credited, if it was paid for by the bankrupt, or if it was obtained under a contract by which the creditor was a trustee for him, for the statute is declaratory and does not exclude or supersede the practice of the courts. It is to be credited, however, only at its cash surrender value, and if it have none, the creditor proves in full.5

It has been twice decided that if the bankrupt die pending the proceedings, the assignees are not bound to pay dividends on the amount proved, but that the proof may be so reformed that the creditor shall receive only full indemnity out of the insurance money and the dividends together."

§ 407. Only the Bankrupt's Property is to be credited. The property which must be credited is only that which, if surrendered, would increase the assets against which the proof is offered; because the practice is only excused by a benefit to the general body of creditors. This reason is so obvious that the French code, which speaks in very general terms of all

1 Smith v. Warner, 133 Mass. 71.

2 Wilson v. Bryant, 134 Mass. 291. 8 Washburn v. Tisdale, 143 Mass. 376.

4 Ex parte Newland, 6 Ben. 342, Fed. Cas. No. 10,170; Ex parte Andrews, 2 Rose, 410, 1 Mad. 573.

7 See Re Potts (1893), 1 Q. B. 648; Re Blackburne, 9 Morrell, 249; Re Hallett (1894), 2 Q. B. 256; Re Sass (1896), 2 Q. B. 12; Rolfe v. Flower, L. R. 1 P. C. 27; Brocklehurst v. Lawe, 7 E. & B. 175; Re Anderson, 12 N. B. R. 502, Fed. Cas. No. 350; Re

5 Ex parte Newland, 6 Ben. 342, Dunkerson, 12 N. B. R. 413, Fed. Cas. Fed. Cas. No. 10,170. No. 4157; and see the three following sections.

Ex parte Newland, 7 Ben. 63, Fed. Cas. No. 10,171; Re Miller, 6 Ch. D. 790.

secured creditors, is so interpreted by the best writers: Alauzet, No. 2662. If the debtor, after incumbering his property has parted with the equity, the court cannot order a sale or surrender, and the assignees have no right to require a credit.1 Such a case does not come within the statute.1

In the converse case of a bankrupt who had bought an equity and promised the vendor to pay the mortgage, it was held in England that the Court had no authority to deal with the case, although the vendor joined in the petition. In this country, many courts of law, and all courts of equity, give a mortgagee a right of proceeding against the new promisor for a deficiency, so that here a proof would be admissible for such deficiency; at least if both mortgagor and mortgagee petitioned. When the rule was adopted by the courts and no statute affected the question, the mortgagee was required to realize his security, though the equity had been conveyed to the daughter of the mortgagor, the equitable rights of these parties not being proved.3

§ 408. Property of Wife, and of Husband, jure mariti. — If the bankrupt's debt is secured upon the separate property of his wife, the creditor proves in full. If upon her real estate in which he has a life interest, as tenant by the curtesy initiate, or otherwise, the value of his interest is deducted.5 Where, in such a case, the wife had obtained a decree that she should redeem the property, her husband's assignees having disclaimed, and, thereupon, the mortgagee offered to prove for the whole of his debt, the court of appeal held that he might do so in the first instance, with directions that if the wife failed to redeem, then the life interest of the bankrupt, disclaimed for a different purpose, would revive, and must be deducted, and they left open the question whether, if the

1 Bassett v. Baird, 85 Penn. St. 384; Dickson v. Chorn, 6 Iowa, 19; Glendon Co. v. Townsend, 120 Mass. 346; Re Kinne, 5 Fed. Rep. 59; Wilson v. Bryant, 134 Mass. 291.

2 Ex parte Keightley, 3 De G. & Sm. 583.

8 Bristol County Bank v. Woodward, 137 Mass. 412.

4 Ex parte Hedderly, 2 M. D. & De G. 487; Savage v. Winchester, 15 Gray, 453.

5 Re Sauthoff, 14 N. B. R. 364, Fed. Cas. No. 12,379; Ex parte Paine, 3 De G. J. & S. 458.

wife redeemed, she could hold the full proof made by the mortgagee.1

§ 409. Exempted Property. It was held by a late able judge, that if the bankrupt has given a mortgage upon property which is expressly exempted from the decree, such as a homestead, the general creditors have an equity to require him to apply his security before proving. This decision contravenes the general rule, and its soundness is doubted.2

§ 410. Property of third Persons. - Under this rule, property pledged or incumbered by a surety for his principal,3 by a stockholder for the corporation, by a partner for his copartner, or by any or all the partners for the firm, or vice versa, though the firm is bankrupt,5 and by any one but the bankrupt, are not to be accounted for in making proof against the estates which did not furnish the security.5

The court looks at the actual interest, and if property equitably joint, though legally not so, is pledged for a joint debt, or property which, for equitable reasons ought to go to diminish. the debt, it must be deducted, and, per contra, property of no beneficial value need not be.6

When joint debtors, not partners, gave security on land which they held in common, and one debtor became bankrupt, the whole value of the security was required to be deducted before proof was made against his assets; which is perhaps defen

458.

1 Ex parte Paine, 3 De G. J. & S.

2 Re Sauthoff, 14 N. B. R. 364, Fed. Cas. No. 12,379. But see Re Stillwell, 7 N. B. R. 226, Fed. Cas. No. 13,448; Dickson v. Chorn, 6 Iowa, 19; Ex parte Goodman, 3 Mad. 373.

3 Ex parte Parr, 1 Rose, 76; Ex parte Goodman, 3 Mad. 373; Ex parte Turney, 3 M. D. & De G. 576; Richardson v. City Bank, 11 Gray, 261.

4 Cabot Bank v. Bodman, 11 Gray, 134; Fox v. Eckstein, 4 N. B. R. 373, Fed. Cas. No. 5009.

5 Brickwood v. Miller, 3 Mer. 279; Ex parte Rodgers, 1 Dea. & Ch. 38; Ex parte Bowden, ib. 135; Ex parte Biddulph, 3 De G. & Sm. 587; Re Holbrook, 2 Lowell, 259, Fed. Cas. No.

6588; Re Thomas, 17 N. B. R. 54, Fed. Cas. No. 13,886; Re Chaffey, 30 U. C. Q. B. 64. But see, as to a change by statute in Canada, Clarke, Insolvent Acts, 255; Ex parte Bate, 3 Dea. 358; Ex parte Shepherd, 1 M. D. & De G. 101, affirmed 2 M. D, & De G. 204.

6 Ex parte Connell, 3 Dea. 201; Ex parte Turney, 3 M. D. & De G. 576; Ex parte Manchester Bank, 3 Ch. D. 481; Ex parte McKenna, 30 L. J. (Bkcy.) 25; Brett's Case, L. R. 8 Ch. 800.

7 Richardson v. Wyman, 4 Gray, 553, explained in Cabot Bank v. Bodman, 11 Gray, 134, doubted in Wilson v. Bryant, 134 Mass. 291. Contra, Ex parte West Riding Union Banking Co., 19 Ch. D. 105.