it.1 In short, the mode of realizing or dealing with the securities is adapted to the equities of each case. § 417. Sales of Incumbered Property; Practice. The court has full power over sales, and may set them aside for any good cause, and even for inadequacy of price, though this power will be exercised with great caution, and so as not to injure a bona fide purchaser. It has power too to confirm an irregular sale,3 and will do so when good faith has been exercised and the sale is a fair one, whatever may have been the informality, as by a mortgagee bidding without leave, an imperfect notice, or any other matter of form. If a mortgagee has once bid in the property under a power and afterwards applies for a sale, he must put up the property at his former bid. The sale should be by public auction unless otherwise ordered. The assignee has the conduct of the sale, because he is bound to be impartial and is never permitted to bid, while the mortgagee may always obtain such leave. If the mortgagee buys, he must conform to the terms of sale as to deposit, etc., like any other purchaser.8 If the assignee in bankruptcy is the mortgagee, the court will appoint some impartial person to make the sale, or require the assignee to resign, or fix a limit of price. The assignees have no right to fix a minimum price unless they undertake to pay the debt.10 576. 1 Ex parte Turney, 3 M. D. & De G. 603; Ex parte Cuddon, 3 M. D. & De G. 302. 2 Re O'Fallon, 2 Dillon, 548, Fed. Cas. No. 10,445; Re Bousfield, 16 N. B. R. 481, Fed. Cas. No. 1702. 8 Ex parte Tatham, 1 Mont. & A. 335; Ex parte Stephens, ib. 31; Ex parte Wilson, Mont. & Ch. 110; Ex parte Yorke, 3 M. D. & De G. 329; Ex parte Partington, 1 Rose, 367; Ex parte Columbine, 2 M. D & De G. 24. 4 Ex parte Ashley, 3 Dea. & Ch. 510; Ex parte Pedder, ib. 622. Lee v. Franklin Bank, 3 N. B. R. 218, Fed. Cas. No. 8188. 5 Ex parte Francis, 1 Dea. & Ch. 274. 6 Ex parte Smith, 2 Dea. & Ch. 60; Ex parte McGregor, 4 De G. & Sm. Ex parte Hodgson, 1 Gl. & J. 12; Ex parte Bacon, 2 Dea. & Ch. 181; Ex parte Lees, ib. 360; Ex parte Cowdry, 2 Gl. & J. 272; Ex parte Greenwood, 1 Dea. & Ch. 542. 8 Ex parte Tatham, 1 Mont. & A. 335; Ex parte Stephens, 2 ib. 31; Ex parte Wilson, Mont. & Ch. 110. 9 Ex parte Cowdry, 2 Gl. & J. 272; Ex parte Rolfe, 1 Dea. & Ch. 77; Ex parte Young, De G. 146; Ex parte Greenwood, 1 Dea. & Ch. 542; Ex parte Lees, 2 Dea. & Ch. 360; Ex parte Perkes, 3 M. D. & De G. 385. 10 Ex parte Barnard, 3 Dea. & Ch. 291; Ex parte Ellis, ib. 297. § 418. Application of Proceeds; Costs. The proceeds of sale, if they exceed the debt, are first applied to pay the costs of the sale and of the proceedings to obtain it. If the sale has been asked for by the assignee in good faith, and upon probable cause, the costs of the sale itself and of the order for it are allowed out of the proceeds, though they prove insufficient to pay the debt, and this even where the mortgagee is the purchaser; and where the sale is at his request, the costs will always come out of the proceeds; 2 but the court should not tax any general charges upon this fund.3 § 419. Interest on Secured Debt. If the security exceeds the debt, the creditor receives interest until the settlement with the assignees whether by redemption, sale or otherwise.* There are dicta that if the creditor applies to the court for relief, the practice is to stop interest at the date of the adjudication; but this is not the law, excepting as applied to the proof for a deficiency.5 If there is such a deficiency, the interest account can only be made up to the date at which unsecured creditors make up their accounts; that is to say, the secured creditor shall not apply his security to interest accrued after the bankruptcy, and thus prove a balance made up in part of such interest.6 Interest may be allowed by the court even after the bankruptcy, and though there is a deficiency, if there is an especial equitable claim for it, as when delay has been caused by the assignees, or has benefited them at the expense of the secured creditor. Under the law of France, which expressly declares 1 Re Ellerhorst, 2 Sawy. 219, Fed. Cas. No. 4380; Re Hambright, 2 N. B. R. 498, Fed. Cas. No. 5973; Re Eldridge, 4 N. B. R. 498, Fed. Cas. No. 4330. 2 Ex parte Brown, 1 Dea. & Ch. 34; Ex parte Say, ib. 32; Ex parte Berkeley, 2 Mont. & A. 54. See Re Dumont, 4 N. B. R. 17, Fed. Cas. No. 4127; see Furness r. Union Bank, 46 Ill. App. 522. 3 Re Blue Ridge Co., 2 Hughes, 224, Fed. Cas. No. 1570. 4 Anon., 7 Vin. Abr. 110; Ex parte Martin, 2 Rose, 87; Ashwell v. Staunton, 30 Beav. 52. 5 Re Haake, 2 Sawy. 231, Fed. Cas. No. 5883; Re Newland, 9 N. B. R. 62, Fed. Cas. No. 10,171; Re Bartenbach, 11 N. B. R. 61, Fed. Cas. No. 1068. Ex parte Wardell, Cooke, 8th ed. 206; Ex parte Badger, 4 Ves. 165; Ex parte Ramsbottom, 4 Dea. & Ch. 198; Ex parte Penfold, 4 De G. & Sm. 282; Re Savin, L. R. 7 Ch. 760; Ex parte Bath, 22 Ch. D. 450. 7 Ex parte Ramsbottom, 4 Dea. & Ch. 198; Ex parte Kensington, 1 Dea. 58, 2 M. & A. 300; Ex parte Penfold, 4 De G. & Sm. 282. that secured creditors shall retain the benefit of the security, it has been much mooted whether they may apply the proceeds of sale to interest accrued after the bankruptcy. Several learned authors agree with our view, that the equality established between unsecured creditors requires that the date of the liquidation should be taken in ascertaining how far a creditor is unsecured. Others, not denying the weight of this position, maintain that the words of the law do not admit of this meaning. If it were true in fact, as perhaps it is in the practice of the French courts, that the secured creditors cannot have the property sold before a certain date later than that fixed for the proof by general creditors, there would a strong argument for permitting interest to be charged against the property to the later date. In our practice the only necessary delay is until the appointment of the assignees; and even that will not, as we have seen, be ordered in derogation of the essential rights of an incumbrancer, but only upon equitable terms, one of which should be that he shall not lose interest by the delay. § 420. At what time a Secured Creditor may Prove. It was once held that a secured creditor could not waive his security until after the assignees are chosen, because the arrangements are to be made with them; and therefore could not vote in the choice of the assignees. This is too literal a construction of the statute, and might work great injustice when a large creditor, with apparent security which he considers worthless, wishes to vote for the assignees; and is unnecessary, since the proof of itself waives the security; and the better opinion is that the surrender or cancellation, express or implied, will entitle the creditor to vote at the first meeting. To prevent misunderstanding, the renunciation should be expressed in the proof,3 In England, the practice grew up of permitting a secured creditor to value his security at his own risk, and to vote at the first meeting upon the deficiency, and this has been adopted 461. 1 Ex parte Baker, 8 Law Reporter, 2 Re Parkes, 10 N. B. R. 82, Fed. Cas. No. 10,754. 8 Ex parte Clark, 1 M. D. & De G. 622. by the latest statute.1 If the valuation is too high, he cannot enlarge his proof, and if too low he must pay the difference to the assignee.2 In this country, this practice is inconsistent with the law which requires the valuation to be made by agreement with the assignee, or by a sale if the assignee and the creditor cannot agree. There is, however, no reason why the valuation should not be made at the first meeting, if it can be done with no possible injury to the general creditors, as when the whole face value of bills or notes is credited.3 But a sale before the assignees are appointed will not usually be granted, or, if undertaken, will be enjoined, unless when there is more danger of loss to the creditor than of gain to the estate by a short delay; and if the creditor has made a sale and bought in the property, his purchase will be avoidable by the assignees, and he will not be permitted to vote; and if he has sacrificed the property, he cannot prove at any time. § 421. Marshalling Securities. The equitable rules for marshalling securities are adopted in bankruptcy, and the assignees representing the bankrupt are subject to all these equities; thus if a factor has pledged his own property and that of his principal for his own debt, the creditor must first exhaust the former.4 If all the security belonged to the bankrupt, the secured creditor has the first right, and may apply the funds within the limits of his title in the way most beneficial to himself; so, for instance, as to pay a debt which would not be provable in bankruptcy, or to pay that part of the debt on which there will be the smallest dividend, or a note, the indorsers of which are worthless.5 1 Ex parte Nnnn, 1 Rose, 322; Ex parte De Tasted, ib. 324; Ex parte Greenwood, Buck, 323; Ex parte Bar clay, 1 Gl. & J. 272. 2 See a very hard case of this kind: Ex parte King, L. R. 20 Eq. 273. Re Bolton, 2 Ben. 189, Fed. Cas. No. 1614. 4 Re Westzinthus, 5 B. & Ad. 817; Broadbent v. Barlow, 3 De G. F. & J. 570; Heyman v. Dubois, L. R. 13 Eq. 158; Ex parte Stephenson, 1 De G. 586; Baldwin v. Belcher, 3 Drury & W. 173; Ex parte Alston, L. R. 4 Ch. 168. 5 Ex parte Havard, Cooke, 8th ed. 147; Ex parte Hunter, 6 Ves. 94; Ex parte Glyn, 1 M. D. & De G. 25; Ex parte Dickin, L. R. 20 Eq. 767; Ex parte Johnson, 3 De G. M. & G. 218; Wilcox v. Fairhaven Bank, 7 Allen, 270; Re Peebles, 13 N. B. R. 149, Fed. Cas. No. 10,902. The persons next to be regarded are those holding valid titles or equities subsequent to his, such as a second mortgagee of part of the property; or a principal whose agent has fraudulently pledged his property; a surety who has encumbered his own property; shareholders who are personally liable for debts of the company.1 If no rights of third persons are concerned, the marshalling may be so ordered as to favor the general creditors against the bankrupt himself or persons claiming under him. After a mortgagee has exercised his election, the courts have refused subrogation to the general creditors.3 § 422. Waiver of Security by Proof. A secured creditor, by proving his debt in full in competition with the other creditors, without duly crediting his security in one of the modes above pointed out, waives his lien for the benefit of the assignees, who may thereupon recover the property for distribution or may sell it discharged of the incumbrance. This applies in cases of composition or liquidation as well as in bankruptcy. Therefore, if the creditor insists that he has no security on property of the bankrupt, and the assignees insist that he has such security, the creditor may prove in full, leaving the assignees to recover the property if it is in the situation for which he contends.5 The waiver is for the benefit of the estate, and neither the 1 Ex parte Vere, 4 Dea. & Ch. 295; Re Westzinthus, 5 B. & Ad. 817; Ex parte Alston, L. R. 4 Ch. 168; Ex parte Hartley, 1 Dea. 288; Broadbent . Barlow, 3 De G. F. & J. 570; Re State Fire Insurance Co., 34 L. J. Ch. 436; Re Professional Life Ass. Co., L. R. 3 Eq. 668; Heyman v. Dubois, L. R. 13 Eq. 158. 2 Foster v. Inglee, 13 N. B. R. 239, Fed. Cas. No. 4973; Re Sauthoff, 14 N. B. R. 364, Fed. Cas. No. 12,379. ton, 3 De G. J. & S. 201; Ex parte Ashworth, L. R. 18 Eq. 705; Re Bal birnie, 3 Ch. D. 488; Hooker v. Olmstead, 6 Pick. 481; Haxtun r. Corse, 2 Barb. Ch. 506; New Bedford Inst. v. Fairhaven Bank, 9 Allen, 175; Stewart v. Isidor, 1 N. B. R. 485, 5 Abb. Pr. N. s. 68; Re Bloss, 4 N. B. R. 147, Fed. Cas. No. 1562; Wallace v. Conrad, 3 N. B. R. 41; Re Granger, 8 N. B. R. 30, Fed. Cas. No. 5684; Re Parkes, 10 N. B. R. 82, Fed. Cas. No. 10,754; 8 Re International Life Ass. Soc., 2 Bowley v. Bowley, 41 Maine, 542; Ch. D. 476. 4 Ex parte Grove, 1 Atk. 104; Ex parte Hornby, Buck, 351; Ex parte Downes, 18 Ves. 290; Ex parte Solomon, 1 Gl. & J. 25; Ex parte Middle Johnson v. Dickinson, 78 N. Y. 42; 5 Ex parte Rippon, L. R. 4 Ch. 639. |