Merchants National Bank v. Sexton, 228 U.S. 634 (1913)

Merchants National Bank v. Sexton

No. 287

Argued May 2, 1913
Decided May 26, 1913
228 U.S. 634

APPEAL FROM THE CIRCUIT COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

This Court does not assent to the principle that one who takes an assignment of part of a claim secured by a common fund can, in the absence of a special agreement or necessary implication arising from particular circumstances, acquire more than a proportional right to the common security or the power to exclude his assignor in the event of a deficiency from participating therein to the extent of the portion retained.

The effect of bankruptcy is to so fix the relative rights of the different classes of creditors that it is not in the power of any class to set aside or frustrate as against the other rights fixed by the adjudication in the assets of the estate, and it is the duty of the trustee to conserve and administer such rights.

A trustee, acquiring by purchase with assets of the general estate some of a series of notes on all of which the bankrupt is liable as endorser but which are all secured pro rata by a special fund with other notes of the same series and held by third parties, is subrogated by operation of law, as well as by subd. c and f of § 67 of the Bankruptcy Act, to all the rights of the parties from whom he purchased the notes, and is entitled to share pro rata in such special fund as a holder of such notes.

The effect of a bank’s setting off against the bankrupt’s credit balance a debt for which it holds collateral is to subrogate the trustee to all the rights of the bank in such collateral.

The facts, which involve the power of the trustee in bankruptcy to use the funds of the estate on behalf of the general creditors to properly administer it and to conserve their rights, and the proportions in which the trustee and creditors specially secured by a special fund shall share in such fund, are stated in the opinion.