Estate of Levin Brothers

On the previous submission of this case in Bank an opinion was prepared by the late Justice Temple, signed by a requisite number of concurring justices, and filed. It appearing, however, that such opinion was not signed by the requisite number of justices who had heard the oral argument in the case, and no stipulation having been entered into that any of the justices not hearing such oral argument might participate in the decision, and the attention of the court having been directed to that fact, the opinion so filed was withdrawn.

That opinion was as follows: —

"The above-named firm, composed of Isidor Levin, Julius Levin, and David Levin, were adjudged insolvents, January 7, 1897, as were also the individual members of the firm. It does not appear that there were any individual creditors.

"The Anglo-Californian Bank, appellant here, holds a mortgage to secure its indebtedness upon the homestead of Isidor Levin, one of the copartners. Appellant's allowed claim amounts to $33,500, and the value of the homestead is $6,000. The homestead is the individual property of Isidor Levin, and was his domicile, but was set apart as a homestead in the proceedings in insolvency, not having been previously a statutory homestead.

"In the decree, settling the final account of the assignee, the court held that the bank should first deduct from its proven debt the value of the homestead, and should be allowed dividends only on the residue of its claim. From that portion of the decree such creditor appeals.

"The appellant contends that it has a right to dividends upon the full amount of its proven claim, without regard to the security which it holds upon the homestead of the individual partner, which it may exhaust after receiving full dividends from the assets of the firm. It is conceded that, even in such a case, its demand will not be paid in full. Both sides rely with apparent confidence upon the words of the statute. As a guide to its interpretation, we are referred to *Page 352 the rule of equity, and to that laid down in the Civil Code applicable to the case, where one creditor is able to reach a fund which the others cannot. There are two sections in our Civil Code in relation to this matter. Section 2899 relates to liens, where one creditor has a lien on several things, and other creditors have subordinate liens on some but not upon all of these things; the person having the prior lien may be compelled to resort first to the exclusive security held by him, `when he can do so without risk or loss to himself, or of injustice to other persons.' Section 3433 states the general equitable principle, and its application is also expressly limited to cases where the doubly secured creditor can have complete payment of his debt, from the funds to which he may alone resort. Otherwise, he may share equally with the general creditors in the common fund, to the extent necessary to his payment in full. These rules, however, prevailed only in cases where assets were marshaled by courts of equity, in cases of actual insolvency, as, for instance, of insolvent partnerships, corporations, and the like. The bankrupt laws, both in England and the United States, have always treated the secured creditor less favorably than courts of equity did. In equity the rule has been, that a creditor who is secured upon assets of the debtor himself, may prove his entire demand and receive his full dividends, and then resort to his securities, provided he only gets full payment. Under the bankruptcy laws, both here and in England, the rule has always been, that in such a case, he could not get dividends upon his full demand without surrendering his securities.