London & San Francisco Bank, Ltd. v. Snell, Heitshu & Woodard Co. 83 F. 603

BELLINGER, District Judge,

in the final winding up of the business of Snell, Heitshu & Woodard Company, there remains about $18,-000 to be distributed among the creditors. The largest of these creditors is the London & San Francisco Bank, Limited. At the date of the commencement of this suit and the appointment of the re ceiver, the bank's claim was $135,819.53, for which it held, by assignment, as collateral security, hook accounts of the face value of $108,-183.95. Tip to last May 21st, the bank had received collections from these accounts amounting to $58,509.(52, and -was paid, by order of the court, as interest, the further sum of $2,08(5.61. I am advised by the receiver that the bank has collected on this collateral, since that date, $7,000, and that it will probably collect, in additionto this, a sum sufficient to bring the total proceeds of collections on this account np to $75,000. The question is presented whether, in the distribution of the money on hand, the bank’s pro rata shall he based upon its full claim, without deduction for what has been received from collateral, or upon the claim as so reduced. The authorities are conflicting, although the weight of authority seems to support the claim *604;of tbe bank that dividends are to be apportioned upon tbe debt as it originally stood. Notwithstanding this, I bave concluded that upon tbe facts of tbe case tbe bank’s dividend ought to be upon its debt as reduced by payments already made. Tbe receiver was appointed at tbe bank’s suit, and tbe business was continued for more than a year upon tbe insistence of the bank that such a course was for tbe best interests of tbe estate, with tbe result that tbe assets of tbe insolvent concern were indirectly used to make good tbe collateral held by tbe bank. Tbe persons from whom tbe plédged accounts were owing were customers of tbe insolvent drug bouse. Tbrougb tbe credit given them by tbe receiver, they were enabled to pay tbe accounts pledged to tbe bank, so that tbe bank bas realized nearly 70 per cent, of tbe face value of tbe accounts beld by it, while tbe new accounts, which, for obvious reasons, ought to bave been of much greater value, could only be made to realize 50 per cent, of their face. Enough appears to show that if tbe affairs of tbe insolvent concern bad been wound up within a reasonable time, without these credits to delinquent customers, tbe fund for distribution among all tbe creditors would bave been at least twice as great as it now is. It is due to tbe bank to say that tbe general creditors and tbe Snell, Heitsbu & Woodard Company were agreed in urging tbe course that was taken, and some of these creditors bave, no doubt, profited by selling goods to tbe receiver while the business was being continued; but, allowing for this, tbe fact remains that tbe bank bas profited by tbe receivership, at tbe expense of tbe general fund, to an extent greater than tbe amount involved in tbe present dispute. And, besides, this bank bas been paid interest on its account during tbe receivership, to a large amount, although it now appears that it was not entitled to these payments. No objection was made at tbe time, all parties seeming to be of tbe opinion that tbe bank was entitled to this interest.