Open main menu

Page:Harvard Law Review Volume 1.djvu/343

This page has been proofread, but needs to be validated.

on bills drawn by A to the amount of £16,000, and he held goods belonging to A of the value of £4,000 as a security against his acceptances. The bill-holders claimed that the proceeds of the goods should be applied in payment of the bills, so as to reduce the amount of their proof against the two estates to £12,000. B’s trustees, on the other hand, contended that the bill-holders would have to prove against both estates for the full amount, and that all dividends paid from B’s estate should be repaid from the security. The court in an elaborate opinion refused to follow the rule laid down in Ex parte Waring, the benefit of which was claimed by the bill-holders, on the ground that in many cases it failed to indemnify the acceptor’s estate, and that it distributed the drawer’s property in a manner which he had never contemplated.

It will be of interest to compare the different ways in which the general creditors of both estates will be affected according as the English or the Scotch rule is applied. Let us suppose the liabilities of drawer and acceptor to be £100,000, and their assets to be £50,000; let us assume further that the bills outstanding amount to £5,000, and that the securities in the hands of the acceptor are worth £2,000; then by the rule of Ex parte Waring the bill-holders would receive £2,000 and be allowed to prove against the two estates for £3,000, obtaining from each £1,500. Thus they would collect in all £5,000, or exactly what was due them. The assets remaining in the hands of the acceptor and drawer would in either case be £48,500. By the Scotch rule the bill-holders would also recover £5,000 by proving against the two estates, but in this instance, after payment of the bills and reimbursement from the securities, the acceptor’s assets would be £49,500 and the drawer’s only £47,500. In other words, the acceptor’s estate would in the first case be subjected to a loss of £1,500 and in the second to a loss only of £500. As the securities were given to save the acceptor harmless, it is evident that the latter result is the one most in keeping with the intention of the parties. It is only just that the drawer’s estate should be made to pay its own debts, and not place the burden of them on the acceptor’s estate.[1]

It is always for the advantage of the general creditors of the ac-


  1. The figures used with reference to the English rule apply equally to the general American rule in cases where both principal and surety are insolvent. The above dividends, taken individually, may be only approximately correct: Their exact amount will depend on whether proof is made against the two estates concurrently or separately.