Estate of Levin Brothers

Voluntary proceedings in insolvency were commenced herein on January 7, 1897, and said firm and the individual members thereof adjudged to be insolvent. Prior thereto, — to-wit, April 20, 1893, — the Anglo-Californian Bank, Limited, procured from Isidor Levin and his wife, to secure to it the payment of all sums due or to become due from said Levin Brothers, a mortgage on a piece of property owned by said Isidor Levin, individually, and occupied by him and his wife as a domicile; but no declaration of homestead had been filed prior to the commencement of the proceedings in insolvency. Under section 64 of the Insolvent Law of 1895, the court in such insolvency proceeding, on March 24, 1897, set apart to said Isidor Levin the property so mortgaged, as a homestead. The said mortgage which was so held by said bank is of the value of six thousand dollars, and in the settlement of the final account of the assignee in said insolvency proceedings the court below held that the amount of said mortgage security should be deducted from the claim of said bank. From this portion of the order settling the said final account the bank appeals. The mortgage held by the appellant was not displaced by the homestead, but is superior and paramount thereto. Further, it appears there are no separate creditors of any of the members of said partnership firm. The claims of one hundred and eighty-two creditors are approved, ranging in amounts from a few dollars to over twenty-seven thousand dollars — the largest being the claim of said appellant, after deducting six thousand dollars covered by its security. The net amount to be distributed among these numerous creditors was only $21,714.82.

Section 48 of the Insolvency Act provides: "When a creditor has a mortgage or pledge of real or personal property of the debtor, or a lien thereon, for securing the payment of a debt owing to him from the debtor, he shall be admitted as a creditor only for the balance of the debt, after deducting the value of such property," etc. (Stats. 1895, p. 146.)

It is also provided by section 39 of the same act that the assignee shall keep separate accounts of the joint stock or property of the copartnership, and the separate estate of each *Page 361 member thereof, and the net proceeds of the joint stock shall be appropriated to pay the creditors of the copartnership, and the net proceeds of the separate property of each partner shall be appropriated to his separate creditors; and if there shall be any balance of the separate estate of any partner, after the payment of his separate debts, such balance shall be added to the joint stock for the payment of the joint creditors.

It is contended on the part of the appellant that the security held by it is no part of the assets of the partnership, "the debtor," and that such security was upon property excluded from the jurisdiction of the insolvency court. But in section 66 of the Insolvency Law it is expressly provided that "words used in this act in the singular include the plural, and in the plural the singular, and the word `debtor' includes partnerships and corporations." The individual members, as well as the partnership, are before the court in the insolvency proceeding, and subject to its jurisdiction. "Each partner owes all the debts of the partnership, and his goods may be taken to pay them." (Inre Straut, 125 Cal. 417.) The general purpose and policy of the law is to produce equality, as far as possible, among the creditors of the insolvent debtors; and in the marshaling of assets to bring about this result our Civil Code lays down the following rule: "Where a creditor is entitled to resort to each of several funds for the satisfaction of his claim, and another person has an interest in, or is entitled as a creditor to resort to some, but not all of them, the latter may require the former to seek satisfaction from those funds to which the latter has no such claim, so far as it can be done without impairing the right of the former to complete satisfaction, and without doing injustice to third persons." (Civ. Code., sec. 3433 See, also, sec. 2899) This declaration of our code represents an old-established principle of jurisprudence in reference to marshaling of assets. In Kent v. Williams, 114 Cal. 541, it is said: "The doctrine of the marshaling of assets, under which, if one creditor has a lien on only one of them, the former must first proceed against that upon which the latter has no lien, is not only fully established by general authority, but is also expressly declared in sections 2899 and 3433 of the Civil Code."

We are of opinion that the court below correctly held that *Page 362 the amount of security in question should first be deducted from appellant's claim, and that it should be allowed to participate in the distribution only upon the balance of such claim.

Whatever may have been held to the contrary in other jurisdictions in reference to such proceedings, the statute provisions and our own decisions thereunder must control here.

Rehearing denied.