mortgagee might prove his whole debt and Certainly the giving of collateral does not Doubtless the title to collaterals pledged for the security of a debt vests in the pledgee so far as necessary to accomplish that purpose, but the obligation to which the collaterals are subsidiary remains the same. The creditor can sue, recover judgment, and collect from the debtor's general property, and apply the proceeds of the collateral to any balance which may remain. Insolvency proceedings shift the creditor's remedy to the interest in the assets. As between debtor and creditor, moneys received on collaterals are applicable by way of payment; but as under the equity rule the creditor's rights in the trust fund are established when the fund is created, collections subsequently made from, or payments subsequently made on, collateral, cannot operate to change the relations between the creditor and his co-creditors in respect of their rights in the fund. As Judge Taft points out, it is because of [141]the distinction between the right in personam and the right in rem that interest is only added up to the date of insolvency, although, after the claims as allowed are paid in full, interest accruing may then be paid before distribution to stockholders. by Chief Justice Parker in Amory v. Fran- We think the collateral is security for the The ruling in Amory v. Francis was disapproved shortly after it was made, by the[142] supreme court of New Hampshire in Moses v. Ranlet, 2 N. H. 488 (1822), Woodbury, J., afterwards Mr. Justice Woodbury of this court, delivering the opinion, and is rejected by the preponderance of decisions in this country, which sustain the conclusion that a creditor with collateral is not on that account to be deprived of the right to prove for his full claim against an insolvent estate. Many of the cases are referred to in Chemical Nat. Bank v. Armstrong, and these and others given in the Encyclopedia of Law and Eq. 2d ed. vol. 3, p. 141. Does the legislation in respect to the administration of national banks require the application of the bankruptcy rule? If not, we are of opinion that the equity rule was properly applied in this case. By section 5234 of the Revised Statutes, and section 1 of the act of June 30, 1876, chap. 156 (19 Stat. at L. 63), the Comptroller of the Currency is authorized to appoint a receiver to close up the affairs of a national banking association when it has failed to redeem its circulation notes when presented for payment, or has been dissolved and its charter forfeited, or has allowed a judgment to remain against it unpaid for thirty days, or whenever the Comptroller shall have be come satisfied of its insolvency after examining its affairs. Such receiver is to take possession of its effects, liquidate its assets, and pay the money derived therefrom to the Treasurer of the United States. In short, the secured creditor is not to be The contractual relations between borrower and lender, pledging collaterals, remain, as is said by the New York court of appeals in People v. Remington, 121 N. Y. 328 [8 L. R. A. 458], "unchanged although insolvency has brought the general estate of the debtor within the jurisdiction of a court of equity for administration and settlement." The creditor looks to the debtor to repay the money borrowed, and to the collateral to accomplish this in whole or in part; and he cannot be deprived either of what his debtor's general ability to pay may yield, or of the particular security he has taken. We cannot concur in the view expressed tisement for three consecutive months, "call- By section 5242, transfers of its property by a national banking association after the commission of an act of insolvency, or in contemplation thereof, to prevent distribution of its assets in the manner provided by the chapter of which that section forms a part, or with a view to preferring any creditor except in payment of its circulating notes, are declared to be null and void. *Section 5236 is as follows: "From time to time, after full provision has first been made for refunding to the United States any deficiency in redeeming the notes of such association, the Comptrol 173 U. S. [143] ler shall make a ratable dividend of the that is to say, proportionally. To be proportionate they must be made by some uni form rule. They are to be paid on all claime against the bank previously proved and adjudicated. All creditors are to be treated alike. The claim against the bank, therefore, must necessarily be made the basis of the apportionment. The business of the bank must stop when insolvency, is declared. Rev. Stat. § 5228. No new debt can be made after that. The only claims the Comptroller can recognize in the settlement of the affairs of the bank are those which are shown by proof satisfactory to him, or by the adjudication of a competent court, to have had their origin in something done before the insolvency. It is clearly his duty, therefore, in paying dividends, to take the value of the claim at that time as the basis of distribution." In Cook County National Bank v. United States, 107 U. S. 445 [27: 537], it was ruled that the statute furnishes a complete code for the distribution of the effects of an insolvent national bank; that its provisions are not to be departed from; and that the bankrupt law does not govern distribution thereunder. The question now before us was In Scott v. Armstrong, 146 U. S. 499 [36: not treated as involved and was not decided, 1059], it was argued that the ordinary equity but the case is in harmony with First Na- rule of set-off in case of insolvency did not tional Bank v. Colby, 21 Wall. 609 [22:687], apply to insolvent national banks in view of and Scott v. Armstrong, 146 U. S. 499 [36: sections 5234, 5236, and 5242 of the Revised 1059], which proceed on the view that all Statutes. It was urged "that these sections rights, legal or equitable, existing at the by implication forbid this set-off because time of the commission of the act of insolv- they require that, after the redemption of the ency which led to the appointment of the re- circulating notes has been fully provided for, ceiver, other than those created by prefer- the assets shall be ratably distributed among ence forbidden by section 5242, are pre- the creditors, and that no preferences given served; and that no additional right can or suffered, *in contemplation of or after com-[145] thereafter be created, either by voluntary or mitting the act of insolvency, shall stand;' involuntary proceedings. The distribution is and "that the assets of the bank existing at to be "ratable" on the claims as proved or ad- the time of the act of insolvency include all judicated, that is, on one rule of proportion its property without regard to any existing applicable to all alike. In order to be "rat-liens thereon or set-offs thereto." But this able" the claims must manifestly be esti- court said: "We do not regard this position mated as of the same point of time, and that as tenable. Undoubtedly, any disposition date has been adjudged to be the date of the by a national bank, being insolvent or in condeclaration of insolvency. White v. Knox, templation of insolvency, of its choses in ac111 U. S. 784 [28: 603]. In that case it ap- tion, securities, or other assets, made to prepeared that the Miners' National Bank had vent their application to the payment of its been put in the hands of a receiver by the circulating notes, or to prefer one creditor Comptroller of the Currency, December 20, to another, is forbidden; but liens, equities, 1875. White presented a claim for $60,000, or rights arising by express agreement, or imwhich the Comptroller refused to allow. plied from the nature of the dealings between White then brought suit to have his claim the parties, or by operation of law, prior to adjudicated, and on June 23, 1883, recovered insolvency and not in contemplation thereof, [144]judgment for $104,523.72, being *the amount are not invalidated. The provisions of the of his claim with interest to the date of the act are not directed against all liens, securjudgment. Meanwhile the Comptroller had ities, pledges, or equities, whereby one credpaid the other creditors ratable dividends, itor may obtain a greater payment than anaggregating sixty-five per cent of the other, but against those given or arising aftamounts due them, respectively, as of the er or in contemplation of insolvency. date when the bank failed. When White's a set-off is otherwise valid, it is not perceived claim was adjudicated, the Comptroller cal- how its allowance can be considered a prefculated the amount due him according to erence, and it is clear that it is only the balthe judgment as of the date of the failure, ance, if any, after the set-off is deducted, and paid him sixty-five per cent on that which can justly be held to form part of the amount. White admitted that he had re- assets of the insolvent. The requirement as ceived all that was due him on the basis of to ratable dividends is to make them from distribution assumed by the Comptroller, but what belongs to the bank; and that which claimed that he was entitled to have his divi- at the time of the insolvency belongs of right dends calculated on the face of the judg- to the debtor does not belong to the bank." ment, which would give him several thousand dollars more than he had received, and he applied for a mandamus to compel the payment to him of the additional sum. The writ was refused by the court below, and its judgment was affirmed. Mr. Chief Justice Waite, speaking for the court, said: "Divi- The rule in bankruptcy went upon the dends are to be paid to all creditors, ratably, 'principle of election; that is to say, the se Where The set-off took effect as of the date of the declaration of insolvency, but outstanding collaterals are not payment, and the statute does not make their surrender a condition to the receipt by the creditor of his share in the assets. have security or not. When secured cred- The case was rightly decided by the cir Mr. Justice White, with whom concurred cured creditor "was not allowed to prove his | the question whether particular creditors whole debt, unless he gave up any security held by him on the estate against which he sought to prove. He might realize his security himself if he had power to do so, or he might apply to have it realized by the court of bankruptcy, or by some other court having competent jurisdiction, and might prove for, any deficiency of the proceeds to satisfy his demand; but if he neglected to do this, [146]and proved for his whole debt, he was bound to give up his security." Robson, Law, Bank. 336. But it was only under bankrupt laws that such election could be compelled. Tayloe v. Thompson, 5 Pet. 358, 396 [8: 154, 158]. And we are unable to accept the suggestion that compulsion under those laws was the result merely of the provision for ratable distribution, which only operated to prevent preferences and to make all kinds of estates, both real and personal, assets for the pay: The court now decides: 1st. That on the ment of debts, and to put specialty and failure of a national bank a creditor theresimple-contract creditors on the same foot- of whose debt is secured by pledge is entitled ing, and so gave to all creditors the right to to be recognized and classed by the Compcome upon the common fund. Equality be- troller of the Currency to the full amount tween them was equity, but that was not in- of his debt, without in any way taking into consistent with the common-law rule award-account the collaterals by which the debt is ing to diligence, prior to insolvency, its ap-secured, and on the amount so recognized he propriate reward; or with conceding the is entitled to be paid out of the general asvalidity of prior contract rights. sets the sum of any dividend which may be We repeat that it appears to us that the declared. 2d. That this right to be classed secured creditor is a creditor to the full for the full amount of the debt, without reamount due him when the insolvency is de-gard to the value of the collaterals, is fixed clared, just as much as the unsecured credit- by the date of the insolvency and continues or is, and cannot be subjected to a different to the final distribution, whatever may be rule. And as the basis on which all creditors the change in the debt thereafter brought are to draw dividends is the amount of their about by the realization of the securities, claims at the time of the declaration of in- provided only that the sums received by the solvency, it necessarily results, for the pur- creditor by way of dividends and from the pose of fixing that basis, that it is immater- amount collected *from the collaterals do not[148] ial what collateral any particular creditor exceed the entire debt and therefore extin may have. The secured creditor cannot be guish it. charged with the estimated value of the collateral, or be compelled to exhaust it before enforcing his direct remedies against the debtor, or to surrender it as a condition thereto, though the receiver may redeem or be subrogated as circumstances may require. Whatever Congress may be authorized to It cannot be doubted that the acts of Conenact by reason of possessing the power to gress, which regulate the collection and dispass uniform laws on the subject of bank-tribution of the assets of an insolvent naruptcies, it is very clear that it did not intend to impinge upon contracts existing between creditors and debtors, by anything prescribed in reference to the administration of the assets of insolvent national banks. Yet it is obvious that the bankruptcy rule converts what on its face gives the secured creditor an equal right with other creditors into a preference against him, and hence takes away a right which he already had. This a court of equity should never do, unless required by statute at the time the indebtedness was created. I am constrained to dissent írom these propositions, because, in my opinion, their enforcement will produce inequality among creditors and operate injustice, and, as a necessary consequence, are inconsistent with the national banking act. tional bank, are controlling. It is clear that every creditor who contracts with such bank does so subject to the provisions directing the manner of distributing the assets of such bank in case of its insolvency, and therefore that the terms of the act enter into and form part of every contract which such bank may make. Now, the act of Congress makes it the duty of the receiver appointed by the Comptroller to liquidate the affairs of a failed national bank, to take possession of and realize its assets (Rev. Stat. § 5234), to call, by advertisement for ninety days, upon reditors to present and make legal proof of their claims (Rev. Stat. § 5235), and from the proceeds of the assets the Comptroller is directed to make a "ratable dividend" on the recognized claims (Rev. Stat. § 5230). To prevent preferences the law, morcover, diOur conclusion is that the claims of cred-rects that all contracts from which preferitors are to be determined as of the date of ences may arise, made after the commission the declaration of insolvency, irrespective of of ar act of insolvency or in contemplation [147] *The requirement of equality of distribution among creditors by the national bank ing act involves no invasion of prior contract rights of any of such creditors, and ought not to be construed as having, or being intended to have, such a result. thereof, "shall be utterly null and void."I fully secured portion of the original loan is Rev. Stat. § 5242. that B is enabled to offset it against the deficient dividend on the unsecured portion of the debt, one equalling the other, thus closing the transaction without loss to him. the receiver treat the real estate as not embraced in the general assets, and that the creditor be allowed to enforce his whole claim against the other assets irrespective of the value of the specific security acquired by his lien. It seems to me superfluous to demonstrate that the rules now upheld, by which a creditor holding security is decided to be entitled to disregard the value of his security and Let us suppose, also, the case of a creditor take a dividend upon the whole amount of of a national bank, who recovers a judgment the debt from the general assets, violates the for $100,000 and levies the same upon real principle of equality and ratable distribu- estate of the bank worth only $50,000. While tion which the act of Congress establishes. the legal title and possession is still in the Is it not evident that if one creditor is al-bank a receiver is appointed and takes poslowed to reap the whole benefit of his se- session of the real estate. Certainly it cancurity, and at the same time take from the not be contended that this judgment-lien general assets a dividend, on his whole claim, holder is not in equally as good a position as as if he had no security, he thereby obtains the holder of a mortgage lien or other colan advantage over the other general credit-lateral security. The doctrine of the court, ors, and that he gets more than his ratable however, if applied to the judgment-lien share of the general assets? Let me illus-holder, would authorize him to demand that [149]trate the unavoidable *consequence of the doctrine now recognized. A loans a national bank $5,000, and takes as the evidence of such loan a note of the bank for the sum named, without security. The lender is thus a general or unsecured creditor for the sum of $5,000. B loans to the same bank $5,000, without security. He is applied to for a further loan, and agrees to loan another $5,000 on receiving collateral worth $5,000, and requires that a new note be executed for the amount of both loans, which recites that it is secured by the collateral in question. While theoretically, therefore, B is a secured creditor for $10,000, he practically has no security for $5,000 thereof. Insolvency supervenes. The general assets received by the Comptroller equal only fifty per cent of the claims. Now, under the rule which the court establishes, A on his unsecured claim of $5,000 collects a dividend of but $2,500, thereby losing $2,500; B, on the other hand, who proves $10,000, taking no account whatever of his collateral, realizes by way of dividends $5,000, and by collections on collaterals a similar amount, with the result that though as to $5,000 he was, in effect, an unsecured creditor, he loses nothing. B is thus in precisely as good a situation as though he had originally demanded and received from the borrowing bank collateral securities equal in value to the full amount loaned. It is thus apparent that the application of the rule would operate to enable B-who, I repeat virtually held no collateral security for $5,000 of the sums loaned-- to be paid his entire debt, though the assets of the insolvent estate of the borrower paid but fifty cents on the dollar, while another creditor holding an unsecured claim for $5,000 fails to realize thereon more than $2,500. Is it not plain that this result is produced by practically a double payment to B, that is, by recognizing B as a preferred creditor in the specific property, of the value of $5,000, pledged to him, withdrawing that property from the general assets, and allowing B to solely appropriate it, yet permitting him, when the secured part of his debt is thus virtually satisfied, to again assert the same secured portion of the debt against other assets, by a claim upon the general fund in the hands of the receiver for the full amount [150]*loaned? The consequence of the receipt of this extra sum upon account of the already That the doctrine maintained by the court also tends to operate a discrimination as between secured creditors, in favor of the one holding collateral securities not susceptible of prompt realization, is, I think demonstrable. Thus, a secured creditor who takes collaterals maturing on the same day with the debt owing to himself, which collaterals consist of negotiable notes, the makers of which and indorsers upon which are pecuniarily responsible, finds the collaterals promptly paid when deposited for collection, and if his debtor should become insolvent the day after payment the creditor could only claim for the residue of the debt still unpaid. On the other hand, a creditor of the same debtor, the debt to whom matures at the same time as that owing the other creditor, and is secured by collaterals also due contemporaneously, has the collaterals protested for nonpayment, and when the debtor fails the collaterals have not been realized. While the first debtor who had received first-class collateral can collect dividends against the estate of his insolvent debtor only for the unpaid portion of the claim, losing a part of such residue by the inability of the estate[151] to pay in full, the debtor who received poor collateral collects dividends out of the general assets on his whole claim, and, if he eventually realizes on his securities, may come out of the transaction without the loss of one cent. These illustrations, to my mind, adequately portray the inequality and injustice which must arise from the application of the rules of distribution now sanctioned by the court. The fallacies which, it strikes me, are involved in the two propositions sanctioned by the court, are these: First. The erroneous assumption that, although the act of Congress contemplates that the dividend should be declared out of the general assets after the secured creditors have withdrawn the amount of their security, it yet provides that the secured creditor who has withdrawn his se curity, and thus been pro tanto satisfied, can still assert his whole claim against the general assets, just as if he had no security and unable to pay his debts, the position of all To resort, however, to reasoning for the had not been allowed to withdraw the same. | Second. The mistaken assumption that the act confers upon the secured creditor a new and substantial right, enabling him to obtain, as a consequence of the failure of the bank, an advantage and preference which would not have existed in his favor had the failure not supervened. This arises from holding that the insolvency fixed the amount of the claim which the secured creditor may assert, as of the time of the insolvency; thereby enabling him to ignore any collections which he may have realized from his securities after the failure, and permitting him to assert as a claim, not the amount due at the time of the proof, but, by relation, the amount due at the date of the failure, the result being to cause the insolvency of the bank to relieve the creditor holding security from the obligation to impute any collections from his collateral to his debt, so as to reduce it by the extent of the collections,-a duty which would have rested on him if insolvency had not taken place. Third. By presupposing that because before failure a secured creditor had a legal right to ignore the collaterals held by him and resort for the whole debt, in the first instance, against the general estate of his debtor, that it would impair the obligation of the contract to require [152]the secured creditor in case of insolvency *to take into account his collaterals and prevent him from asserting his whole claim, for the purpose of a dividend, against the general assets. But the preferential right arising from the contract of pledge is in nowise impaired by compelling the creditor to first exercise his preference against the security received from the debtor, and thus confine him to the specific advantage derived from his contract. Further, however, as the contract, construed in connection with the law governing it, restricts the secured as well as the unsecured creditor to a ratable dividend from the general assets, the secured creditor is prevented from enhancing the advantage obtained as a result of the contract for security, by proving his claim as if no security existed, since to allow him to so do would destroy the rule of ratable division, subject and subordinate to which the contract was made. A forcible statement of the true doctrine on In 1794 (4 Bro. Ch. star paging 55) the the foregoing subject was expressed in the prevailing practice with respect to a sale of case of Société Générale de Paris v. Geen, L. a mortgage security was regulated by a genR. 8 App. Cas. 606. The question before the eral order formulated by Lord Chancellor court arose upon the construction to be given Loughborough, wherein, among other things, to a clause of the English bankrupt act of it was provided that in case the proceeds of 1869, incidental to the requirement of a sec- sale should be insufficient to pay and satisfy tion, expressly embodied for the first time in what should be found due upon the morta bankrupt act, that the secured creditor gage, "that such mortgagee or mortgagees be should in some form account for the collater- admitted a creditor or creditors under such al held by him in proving his claim against commission for such deficiency, and to rethe general estate. In considering the receive a dividend or dividends thereon, out of striction upon the remedy of a secured creditor produced by the insolvency, and the consequent right of such creditor to receive only a ratable dividend on the balance of the debt after the deduction of the value of the collaterals, Lord Fitzgerald said (p. 620): "Under ordinary circumstances each creditor is at liberty to pursue at his discretion the remedies which the law gives him, but when insolvency intervenes, and the debtor is In the earliest English bankrupt act (34 & 35 Hen. VIII. chap. 4) the distribution of the general assets of the bankrupt was directed to be made, "for true satisfaction and payment of the said creditors; that is to say, to every of the said creditors, a portion rate and rate like, according to the quantity of their debts." In the statute of 13 Elizabeth, chap. 7 (and which was in force in this particular when the consolidated bankrupt statute of 6 Geo. IV. chap. 16, was adopted), the distribution of assets was directed in language similar to that just quoted from the statute of Henry VIII. Under these statutes, from the earliest times, it was held by the lord chancellors of England, having the supervision of the execution of the bankrupt statutes, that a secured creditor could not retain his collateral security and prove for his whole debt, but must have his security sold, and prove for the rest of the debt only. Lord Somers, in Wiseman v. Carbonell (1695) 1 Eq. Cas. Abr. 312, pl. 9; Lord Hardwicke, in Howell, Petitioner (1737) 7 Vin. Abr. 101. pl. 13, and in Ex parte Grove, (1747) 1 Atk. 105; Lord Thurlow, in Ex parte Dickson (1789) 2 Cox, Ch. Cas. 196, and in Ex parte Coming (1790) 2 Cox, Ch. Cas. 225; Cooke's Bankrupt Laws (1st ed. 1786) 114, and (4th ed. 1799) 119. the bankrupt's estate or *effects, ratably and[154] Concerning the practice in bankruptcy, "The practice has been long established in |