Leath, Thomas H.

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Insolvency -- Rights of Assignee of Secured Depositor of Insolvent Bank

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NORTH CAROLINA LAW REVIEWVolume 13 | Number 2 Article 152-1-1935Insolvency -- Rights of Assignee of SecuredDepositor of Insolvent BankThomas H. LeathFollow this and additional works at: http://scholarship.law.unc.edu/nclrPart of the Law CommonsThis Note is brought to you for free and open access by Carolina Law Scholarship Repository. It has been accepted for inclusion in North Carolina LawReview by an authorized editor of Carolina Law Scholarship Repository. For more information, please contact law_repository@unc.edu.Recommended CitationThomas H. Leath, Insolvency -- Rights of Assignee of Secured Depositor of Insolvent Bank, 13 N.C. L. Rev. 239 (1935).Available at: http://scholarship.law.unc.edu/nclr/vol13/iss2/15NOTES AND COMMENTSthat would not have warranted it in his domicile.3 3 The inconvenienceof witnesses, the increased difficulty and expense of defending suit ina foreign jurisdiction are not considered as warranting injunctions. 84Courts also disregard the inability of the foreign jury to view thepremises where the accident occurred.3 5 Nor is unprofessional andunethical conduct of an attorney for the plaintiff in the foreign suit asufficient ground for granting an injunction.3 6The injunctive relief which the court in the principal case grantedagainst the plaintiff in the foreign proceeding is consistent with thesesettled rules. In the Missouri action the claimant sought to avoid bothan Illinois statute and an Illinois contract by which claimant's remedywas limited. The Federal District Court went too far, however, whenit ordered the Workmen's Compensation Commission not to entertainthe suit. The attempted distinction between an administrative tribunaland a court may have served to circumvent the federal statute,3 7 but itdid not give the Federal Court direct supervisory power over the Com-mission.3  JOHN R. JENKINS., JR.Insolvency-Rights of Assignee of Secured Depositor of InsolventBank.A county's deposit in a state bank was secured by state bonds, andby indemnity bonds written by plaintiff insurer. The bank became in-solvent; then on the insistence of the plaintiff the county sold the statebonds and credited the proceeds on its deposit; the county, neverthe-Grover v. Woodward, 92 N. J. Eq. 227, 112 AtI. 412 (1920).McWhorter v. Williams, 155 So. 309 (Ala. 1934) ; Illinois Life Ins. Co. v.Prentiss, 277 IIl. 383, 115 N. E. 554 (1917); Missouri, K. & T. R. Co. v. Ball, 126Kan. 745, 271 Pac. 313 (1928) ; American Express Co. v. Fox, 135 Tenn. 489, 187S. W. 1117 (1916). Contra: Cleveland, C., C. & St. L. Ry Co. v. Shelly, 96 Ind.App. 273, 70 N. E. 328 (1930) ; Kern v. Cleveland, C., C. & St. L. Ry. Co., 204Ind. 595, 185 N. E. 446 (1933); Wabash Ry. Co. v. Peterson, 187 Iowa 1331, 175N. W. 523 (1919); Bankers' Life Co. v. Loring, 250 N. W. 8 (Iowa, 1933);Northern Pac. Ry. Co. v. Richey & Gilbert Co., 132 Wash. 526, 232 Pac. 355 (1925).The rule applies with equal strictness where witnesses are unable to attend thedistant trial and it is necessary to take depositions instead of oral testimony. Mis-souri-Kansas-Texas R. Co. v. Ball, 126 Kan. 745, 271 Pac. 313 (1928) ; Chicago,M. & St. P. Ry. Co. v. McGinley, 175 Wis. 565, 185 N. W. 218 (1921).Missouri-Kansas-Texas R. Co. v. Ball, 126 Kan. 745, 271 Pac. 313 (1928);Chicago, M. & St. P. Ry. Co. v. McGinley, 175 Wis. 565, 185 N. W. 218 (1921)." Reed's Adm'x v. Illinois Cent. Ry. Co., 182 Ky. 455, 206 S. W. 794 (1918) ;Chicago, M. & St. P. Ry. Co. v. McGinley, 175 Wis. 565, 185, N. W. 218 (1921) ;Chicago, M. & St. P. Ry. Co. v. Wolf, 199 Wis. 278, 226 N. W. 297 (1929).136 STAT. 1162 (1911), 28 U. S. C. A. §379 (1928): "The writ of injunctionshall not be granted by any court of the United States to stay proceedings in anycourt of a State, except in cases where such injunction may be authorized by anylaw relating to proceedings in bankruptcy." See Durfee and Sloss, Federal In-junctions Against Proceedings in. State Courts: The Life History of a Statute(1932) 30 Mic. L. REv. 1145, 1154; Note (1932) 10 N. C. L. RaV. 209.Notes (1925) 25 CoL. L. REv. 371, 372.THE NORTH CAROLINA LAW REVIEWless, filed a claim in the bank liquidation proceedings for the full amountof the deposit; plaintiff paid the county the balance due on its deposit,and took an assignment of its claim in the liquidation. Held, plaintiff'sclaim is allowed only for the sum it actually paid the county.1Four different rules dealing with the rights of creditors holding col-lateral security worth less than the full amount of their claims have beenapplied in the distribution of insolvent estates.2 The first of these iscommonly known as the bankruptcy rule under which the creditoris allowed either to surrender his security and prove .for dividends uponthe full amount owing at the time of the adjudication of insolvency, orto exhaust his security and prove for the balance.3  This rule has beenembodied in the National Bankruptcy Act.4 The second rule allows thecreditor to hold his security and receive dividends upon the amountowing at the time of the declaration of each dividend regardless of anyamount received from his security subsequent thereto; but the amountsreceived from the security before the declaration of the dividend go toreduce the claim on which the dividend is allowed.5 The third ruleallows the creditor to retain his security and receive dividends upon theamount owing at the time of proving his claim regardless of any amountreceived from his security subsequent thereto; but all sums received priorto proving the claim reduce the amount on which dividends are allowed.0Under the fourth rule, better known as the chancery rule, the creditormay prove for and receive dividends upon the full amount owing atthe time of the declaration of insolvency, regardless of the amount ofhis security or any sums received therefrom after the insolvency, untilthe claim has been paid in full.7North Carolina adopted the bankruptcy rule in the case of Creecy v.Pearce,8 but changed five years later to the chancery rule9 which hasbeen applied consistently until the present.' 0 The instant case refusedI U. S. Fidelity & Guaranty Co. v. Hood, 206 N. C. 639, 175 S. E. 135 (1934).'Merrill v. National Bank of Jacksonville, 173 U. S. 131, 19 Sup. Ct. 360,43 L. ed. 640 (1899) ; Chemical National Bank v. Armstrong, 59 Fed. 372 (C. C.S. D. Ohio 1893); Note L. R. A, 1918B 1024.'Citizens & Southern Bank v. Alexander, 147 Ga. 74, 92 S. E. 868, (1917);Bristol County Savings Bank v. Woodward, 137 Mass. 412 (1884).'30 STAT. 560 §57 (e), (h) (1898), 11 U. S. C. A. §93 (e), (h) (1927).'Philadelphia Warehouse Co. v. Anniston Pipe Co., 106 Ala. 357, 18 So. 43(1895) ; State National Bank v. Esterly, 69 Ohio 24, 68 N. E. 582 (1903).'ln re Hamilton's Estate, 1 Fed. 800 (D. Ky. 1880); Levy v. Chicago Na-tional Bank, 158 Ill. 88, 42 N. E. 129, (1895); Kellock's Case [1868] L. R 3Ch. 769."Merrill v. National Bank of Jacksonville, 173 U. S. 131, 19 Sup. Ct. 360, 43L. ed. 640 f(1899) ; In re Jamison's Estate, 163 Pa. 143, 29 Atl. 1001 (1894);Mason v. Bogg, 2 Myl. & C. 443 (Ch. 1837).8 69 N. C. 67 (1873).'Brown v. Bank, 79 N. C. 244 (1878)."Winston v. Biggs, 117 N. C. 206, 23 S. E. 316 (1895) (assignment forbenefit of creditors) ; Merchants National Bank v. Flippen, 158 N. C. 334, 74 S. E.NOTES AND COMMENTSto allow the plaintiff to prove for and receive dividends upon the fullamount due at the time of insolvency because "the bonds were sold andthe credit made at plaintiff's solicitation" before the claim was filed.According to the previous decisions, the county itself would have beenentitled to recover pro rata on the original deposit."1 If the plaintiff hadpaid the county the full amount of its deposit, it would have been en-titled to all the rights and remedies of the county, including the statebonds held as collateral. 12 The plaintiff, as creditor, under the chan-cery rule hitherto adhered to in North Carolina, could then have sold thestate bonds and still have dividends upon the entire claim in the liquida-tion proceedings until Tepaid in full. The plaintiff's rights should bethe same whether it paid the balance after the county had sold the col-lateral, or paid the county in full and took the collateral and sold it it-self. In either case the plaintiff is paying out of its pocket the sameamount. The court failed to follow the well established law in thisstate.' 3 By departing from the chancery rule in favor of the third ruleabove, the court took a position which receives considerable support,14but it should have recognized it was changing North Carolina law. Itis interesting to note the parallel betwen this state and England whichchanged first from the bankruptcy rule' 5 to the chancery rule,1 6 then tothe third rule,' 7 and finally returned by statute to the bankruptcy rule.'8T MAS H. LEATii.100 (1912) (receivership of insolvent bank); Boney & Harper Milling Co. v.Stephenson, 161 N. C. 510, 77 S. E. 676 (1913) (receivership of insolvent corpora-tion) ; Central Bank & Trust Co. v. Jarrett, 195 N. C. 798, 143 S. E. 827 (1928)(assignment for benefit of creditors) ; see Commissioner of Banks v. White, 202N. C. 311, 314, 162 S. E. 736, 737 (1932) (receivership of insolvent bank).' Merchants National Bank v. Flippen, 158 N. C. 334, 74 S. E. 100 (1912) ; seeCommissioner of Banks v. White, 202 N. C. 311, 314, 162 S. E. 736, 737 (1932)."Smith v. McLeod, 38 N. C. 390 (1844) ; see Brinson v. Thomas, 55 N. C.414 (1856); 5 PomEaoy, EQUITY JURisPRuDFxcE & EQuTABLE REM IsS (2d. ed.1919) §2345.'Svpra note 10. A possible ground for supporting the decision, not, how-ever, advanced by the court, is that here the plaintiff was not surety for the entiredeposit, but for only a part. It therefore might be argued that the plaintiffwould not be entitled to the full claim of the county quite apart from the saleof the state bonds at the plaintiff's request. The answer to this argument is thatthe full claim was assigned to the plaintiff.14 See dissenting opinion Merrill v. National Bank of Jacksonville, 173 U. S.131, 19 Sup. Ct. 360, 43 L. ed. 640 (1899); Note (1931) 19 CAL. L. REv. 638;Note (1909) 23 HARv. L. REv. 219; Note (1920) 15 ILL. L. REv. 171; Note (1923)8 hN-N. L. REv..232.'Greenwood v. Taylor, 1 Russ. & M. 185 (Ch. 1830)."' Mason v. Bogg, 2 Myl & C. 443 (Ch. 1837).Kellock's Case, (1868) L. R. 3 Ch. 769.a SuppraIrn COURT OF JUDICATURE Acr (1873) Amendment, 38 & 39 Vicr. c.77, §10 (1875).

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Insolvency -- Rights of Assignee of Secured Depositor of Insolvent Bank

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