sible, on the ground that the debt being joint, and not joint and several, if the creditor claimed to prove his whole debt, he should perhaps give credit for the whole security. Unless the decision can be thus explained, it is not sound. The rule is clear that only the interest of the bankrupt is to be valued. Thus where the bankrupts accepted a bill, and the creditor had a lien on goods in which they were jointly interested with a third person, their interest only was deducted.1 And so where a firm had been dissolved and the continuing partner became bankrupt, all his debts being several, creditors secured by joint property of the former partners were required to give credit for that half of the property which belonged to their debtor.2 If the creditor has separate promises, as upon a note or bill drawn or signed by one and accepted or indorsed by the other partner, he may prove in full against each separate estate, though he have security upon the joint property.3

§ 411. Security for Composition. Where a creditor had accepted a composition, payable by instalments, with security, the original debt to revive on failure to pay any instalment, and the debtor became bankrupt, not having paid the whole composition, it was decided that the creditor might elect to hold his security as against the lesser debt represented by the balance due on the composition, or to give up his security and prove for the original debt, deducting only the instalments received, but that he could not retain the security as against the larger amount.4

§ 412. Security by Bills and Notes. Bills and notes of the debtor himself, taken for goods sold, or money lent, are often securities, and this circumstance has caused a misunderstanding of some of the English cases, as before explained. They are not securities upon property, and are only brought into court in testimony of their not having been negotiated. Being considered as security for the debt, it is the practice in England to prove the debt, exhibiting the "securities," for the 1 Ex parte Prescott, 3 Dea. & Ch. 218, and 4 Dea. & Ch. 23.

2 Ex parte West Riding Union Banking Co., 19 Ch. D. 105.

8 Re Plummer, 1 Phil. 56; Ex parte English & Am. Bank, L. R. 4 Ch. 49. 4 Ex parte Ellis, 4 Dea. & Ch.

736.

purpose above mentioned. In this country, it is usual to prove on the bills and notes themselves. The result is altogether similar, because in both countries when a dividend is paid it is indorsed on the securities, and when a bill or note has been paid in full by an acceptor or promisor, the estate of a bankrupt surety or indorser is relieved by striking out so much of the proof.2

It has been held that bills and notes of third persons which are merely pledged or deposited for a debt and not indorsed or indorsed without recourse must be sold or valued; but not if they have been discounted, nor if money has been advanced upon them preparatory to an expected discount, nor if given as security for goods sold. Again, if they have been indorsed by the bankrupt without restriction, a sale of them would render his estate liable on the indorsements, as well as for any deficiency of the original debt, which, if the other parties are insolvent, would defeat the purpose of the rule, which is to relieve his general assets. For this reason, and because such a transfer of paper is not a mere pledge of property, but includes a promise on the bankrupt's part, the better opinion is that the creditor in such a case may prove upon the bankrupt's indorsement of the bills or notes to the extent of the debt due from him to the creditor, without a sale or valuation unless it is clear that the indorsement was merely for collection. We have already seen that the creditor may prove against the estates of third persons the full amount of the several bills or notes.5

§ 413. Surety; Law of Massachusetts and Maine. Another exception is permitted in Massachusetts and Maine, that if security is given by the principal direct to the creditor, the latter must apply it before proving against the estate of

1 See supra, § 224.

2 See supra, § 168.

3 See Ex parte Britten, 3 Dea. & Ch. 35; Ex parte Early, 14 L. T. N. S. 296; Ex parte Price, 3 M. D. & De G. 586.

Ex parte Farnsworth, 1 Lowell, 497, Fed. Cas. No. 4672; Re Weeks, 13 N. B. R. 263, Fed. Cas. No. 17,349;

Ex parte Wildman, 1 Atk. 109; Ex parte Bloxham, 6 Ves. 449; Ex parte Twogood, 19 Ves. 229; Ex parte Vere, 4 Dea. & Ch. 295; Ex parte Philipps, 1 M. D. & De G. 232; Ex parte Schofield, 12 Ch. D. 337; Ex parte Gloucestershire Bank Co., 5 L. T. N. s. 216.

5 Ex parte Blackburne, 10 Ves. 204; Ex parte Rathbone, Buck, 215.

the bankrupt surety; the soundness of the decision has been denied,2 and it is not the law of England. There are circumstances in which a surety has a right to have the securities of the creditor applied before he is called on, but it is submitted that, except in those cases, the assignees of the surety have no equity to reduce his just debt by the application of any property not his own. In adjusting the accounts between the two estates after the creditor is paid in full, that of the surety will of course be entitled to the benefit of the securities in account. § 414. Security held by Surety. If, however, security is given by the principal to the surety for his indemnity, and both become bankrupt, the creditor can prove against neither estate without first crediting the security.5 This is hardly an exception to the general rule, for both estates are interested in the security; that of the principal because it was his property, and is pledged for his debt; and that of the surety because it was given specifically for his indemnity, and he has not only an equity but a special property in it, and his general creditors have a right to see it appropriated, as far as it will go, to the purpose for which it was pledged. In Scotland proof is made in full against both estates and the security is applied to reimburse the surety's estate the amount of dividends paid on the debt.6

If the surety who holds security from the bankrupt principal for his indemnity remains solvent, the creditor can prove in full against the assets of the principal. The equity is precisely the same as in the case last considered, that the principal's property ought to be applied towards the payment of his

1 Lanckton v. Wolcott, 6 Met. 305, as explained in Cabot Bank v. Bodman, 11 Gray, 134, followed, Re Fickett, 72 Maine, 266, and Wilson v. Bryant, 134 Mass. 291.

5 Ex parte Waring, 19 Ves. 345, see the decree in Powles v. Hargreaves, 3 De G. M. & G. 430; Ex parte Hobhouse, 2 Dea. 291; Coupland's Claim, L. R. 5 Ch. 167; Leech's Claim, L. R. 6 Ch.

2 Re Cram, 1 N. B. R. 504, Fed. Cas. 388; Ex parte Brett, ib. 838; Banner No. 3343.

v. Johnston, L. R. 5 H. of L. 157; Ex

3 Ex parte Fairlie, 3 Dea. & Ch. 285. parte Joint Stock Dis. Co., L. R. 19 Eq. See Re Hodges, 3 Manson, 329.

41 Brandt, Suretyship, 2d ed. § 237;

Baylies, Sureties, p. 305.

1, and L. R. 10 Ch. 198.

6 Roval Bank v. Commercial Bank,

7 App. Cas. 366.

own debt, unless there is some hardship to the proving creditor. In this country the courts recognize a distinct and positive trust on the part of the surety to apply the property to the debt. The practice, therefore, should be to require this application in the first instance. But the statutes have not provided for the case and the decisions are that the creditor may prove in full.2 If the creditor has a contract which enables him to prove in full against the bankrupt, though he has a surety for part of his debt, it would be unjust to deprive him of his proof by reason of security held by the surety without his privity.3

Proof in full does not necessarily imply that full dividends are to be drawn. It was always the practice in doubtful or disputed cases, turning upon the title to property in the hands. of the creditor, to permit proof by him in the bankruptcy, subject to revision afterwards when the title should have been litigated, because the commissioners formerly lacked power to decide questions of title, but had full power to adjust the amount of dividend to be paid to any creditor, and the proof was required to be made at certain stated meetings, or the right might be lost. It may be, therefore, that a bill or petition would lie by the assignees for the application of the security and the reduction of the proof. Such is, perhaps, the law of bankruptcy. If the surety pays the debt and offers to prove or to be subrogated to the creditor's proof, he must give credit for the security.

At law a solvent surety holding security has no valid defence against the creditor by reason of the creditor having

1 2 Brandt, Suretyship, 2d ed. § 324. 2 Franklin County Bank v. First N. Bank of Greenfield, 138 Mass. 515; Agawam Bk. v. Morris, 4 Cush. 99; Meed v. Nelson, 9 Gray, 55; Prov. Inst. v. Stetson, 12 Gray, 27; Ex parte Brathwaite, 36 L. T. N. s. 520, affirmed, 841; Ex parte Paramore, 1 Dea. 279; Re Barham, 1 M. D. & De G. 179.

4 See Ex parte Ackroyd, 1 Gl. & J. 391; Ex parte Dobson, 4 Dea. & Ch. 69; Ex parte Rippon, L. R. 4 Ch. 639.

5 See Re Jaycox, 8 N. B. R. 241, Fed. Cas. No. 7242; Re Holbrook, 2 Lowell, 259, Fed. Cas. No. 6588; Ex parte Sherrington, 1 M. D. & De G. 195; Ex parte Mann, 5 Ch. D. 367.

Re Baldwin, 19 N. B. R. 52, Fed. Cas. No. 796; Ex parte Mann, 5 Ch.

3 Midland Bk. v. Chambers, L. R. 7 D. 367, 370, per Mellish, L. J.; Baines Eq. 179, L. R. 4 Ch. 398.

v. Wright, 15 Q. B. D. 102.

proved in full.1 But the creditor by proving waives his right to look to the property.2

3

§ 415. Valuation of Security; Agreement. The value to be credited may be fixed by agreement between the creditor and the assignees, either directly or through such appraisement of disinterested persons as they may jointly appoint; and the creditor may pay any excess, or prove for any deficiency accordingly. And it may be said in general that, subject to the revisory power of the court, any disposition which the parties. may make is equivalent to an order of court. In Massachusetts a sale by consent of the assignee is not the equivalent of one ordered by the court.5 In England the creditor has the right in order to prove at the first meeting or in composition to value his own security, but subject to the liability to account to the assignee or the compounding debtor, as the case may be, for any surplus which he may realize above the valuation, and with no right to prove for any deficiency.

§ 416. Equitable Practice. If the creditor, through no fault of his own, has lost his security he may prove in full at any time before the estate is finally settled.7

Courts of bankruptcy permit a secured creditor to sell part of his security and abandon the unsalable part; to make claim for a debt secured by property, of which the title is claimed by a third person, and await the issue of the litigation before ascertaining the value; and to prove for his full debt, retaining security which at the time is wholly unsalable, upon his undertaking to account for whatever may be realized from

9

1 Merchants' Bank v. Comstock, 55 9699; affirmed, 14 Blatch. 207, Fed. N. Y. 24. Cas. No. 9700; Re Letchworth, 18 Fed. Rep. 822.

2 Infra, § 422, and see Re Morris, 2 Lowell, 424, Fed. Cas. No. 9823; New Bedford . Fairhaven, 9 Allen, 175; Re Jaycox, 8 N. B. R. 241, Fed. Cas. No. 7242; Franklin County Bank v. First Nat. Bank of Greenfield, 138 Mass. 515, per Field, J.

5 Smith v. Warner, 133 Mass. 71. Société Générale de Paris v. Geen, 8 App. Cas. 606.

7 Ex parte Peake L. R. 2 Ch. 453. 8 Ex parte Davenport, 1 M. D. & De G. 313; Ex parte Wace, 2 M. D. &

3 Melbourne Bank Co. v. Brougham, De G. 730; Ex parte Greaves, De G. 4 App. Cas. 156.

Ex parte Whitbread, 3 Dea. 311; Re Moller, 8 Ben. 526, Fed. Cas. No.

119; Rome v. Young, 4 Y. & C. Ex. 204. 9 Ex parte Williams, 4 Dea. & Ch.

180.