
    In re COATES, BENNETT & REIDENBACH, Inc.
    (District Court, W. D. New York.
    October 28, 1925.)
    No. 8838.
    I. Bankruptcy <§=310 — Creditor secured by warehoused property was required, immediately following filing of petition, to follow its security with prudence and care.
    A creditor, who was secured by warehoused property, was required immediately following the filing of a petition, and especially where it received notice from the trustee of a possible impairment of its pledged property, to follow its security with care, and particularly so where the company holding such security, a Canadian concern, was allied with the bankrupt and filed its petition for liquidation, in Canada.
    2. Bankruptcy <§=312 — Negligence of representatives of secured creditors in failing promptly to follow pledged property could not operate to detriment of unsecured creditors.
    Negligence of representatives of a secured creditor, in failing promptly to follow pledged warehouse properly, was imputable to such creditor, and would not be permitted to operate to the detriment of unsecured creditors.
    3. Bankruptcy <§=312 — Secured creditor, disposing of pledge, for nominal sum, cannot prove balance as unsecured claim.
    Secured creditor, disposing of pledged collateral security for nominal sum, cannot prove balance as unsecured claim.
    4. Bankruptcy <§=323 — Ordinarily pledgee, after sale of pledged property, may prove his claim in bankruptcy for any deficiency.
    Ordinarily,- pledgee, after sale of pledged property, may prove his claim in bankruptcy for any deficiency, unless the pledgee was negligent in properly handling the security or protecting himself from loss.
    5. Bankruptcy <§=3! 2 — Negligence of secured creditor in failing promptly to possess itself of pledged warehouse property held not to estop it from proving as unsecured debt claim minus value of security not seized.
    Negligence of a secured creditor in failing to possess itself promptly of pledged warehouse property, for which negligence the referee deducted from the secured claim the market value of the pledged property at the time possession should have been taken by the creditor, held not to estop it from proving balance of claim as an unsecured debt, where such negligence had no relation to the sales price that in all probability it would have received on a seizure.
    In Bankruptcy. In the matter of Coates, Bennett & Reidenbach, Inc., bankrupt, in which claimant, the Genesee Valley Trust Company appeared as secured creditor. On review of order of referee charging claimant with the market value of pledged property as of a certain date, and permitting claimant to prove balance of claim as an unsecured claim.
    Order affirmed.
    Peck & Whitbeck, of Rochester, N. Y. (Ernest C. Whitbeck, of Rochester, N. Y., of counsel), for claimant.
    TTubbell, Taylor, Goodwin & Moser, of Rochester, N. Y., for trustee.
   HAZEL, District Judge.

The question submitted for review is whether the claimant, Genesee Valley Trust Company, used such care and diligence in endeavoring to obtain possession of property, pledged as collateral security for its debt on promissory notes made by tbe bankrupt, as a reasonably careful' and prudent person would use under the same circumstances. Tbe referee concluded that claimant was guilty of laebes, and failed to exercise diligence and a proper effort to secure possession of- tbe pledged property, consisting of a quantity of scrap iron and particularly specified in warehouse receipts. He did not disallow tbe entire claim, but charged claimant with the value of tbe scrap iron on tbe day tbe Consumers’ Metal- Company, Limited, a Canadian company, failed in business, fixing tbe value at $5 per ton on 1,200 tons, and then deducted from claimant’s secured claim tbe sum of $6,000, allowing it to prove tbe balance as an unsecured debt.

Tbe referee, in my judgment, has given equitable consideration to tbe involved questions. His conclusions on tbe facts should not be disturbed, unless it is shown that be was clearly Wrong in applying laches to tbe secured creditor, and that there was palpable failure on bis part to apply tbe equities. Tbe filed stipulation .of facts is perhaps susceptible of different inferences, but I think tbe inferences drawn by tbe referee are not unwarranted, namely, that claimant did not follow its security with sufficient prudence and care, as it should have done immediately following tbe filing of the petition in bankruptcy herein, and especially after tbe Consumers’ Metal Company, Limited, which was allied with tbe bankrupt herein, filed its petition for liquidation in Canada.

Claimant’s contention that everything was done that reasonably could be done to protect tbe security, and that it would have been expensive to move the scrap iron, especially as its value, and consequently tbe value of tbe security, became greatly depreciated, has not been overlooked by me; but it, I think, fails to outweigh tbe asserted negligence in timely guarding tbe property and taking steps to acquire it. It must be held accountable for tbe lack of foresight of its representatives, as in this particular such negligence is imputable to it, and cannot be permitted to operate to tbe detriment of tbe unsecured creditors. Tbe record shows that notice was given claimant by tbe trustee of tbe possible impairment of its pledge, and it should have acted thereon with greater promptitude in possessing itself of the' warehoused property. This principle,, applicable to a bailee, finds support in Ouderkirk v. Cent. Nat. Bank of Troy, 119 N. Y. 263, 23 N. E. 875, and In re Strobel (D. C.) 163 F. 380.

Counsel for tbe trustee has argued that claimant should not be permitted to prove any amount as an unsecured creditor, owing to its negligence. Of course, a secured creditor cannot be permitted to dispose of his pledge or collateral seedrity at a nominal sum, and then come into a court of bankruptcy and prove tbe balance as an unsecured creditor; but I think that tbe referee, in treating tbe subject on equitable grounds, was justified in considering that, without fault on tbe part of tbe pledgee, the market value of tbe scrap iron greatly depreciated, following tbe liquidation proceedings of tbe Canadian company. He charged claimant with the value of tbe pledged property at such time pnly, and permitted proving tbe balance as an unsecured debt. It would not, in my opinion, be equitable to-rule that claimant is estopped from proving its debt, after deducting tbe market value of its security at tbe time’ when possession-should have been taken, since it is not proven that, due to negligence, tbe security became worthless or was depreciated in value.

Tbe ease in this aspect is analogous to In re Linfortb, 87 E. 386. There permission was granted tbe mortgagee by tbe District Court to foreclose a mortgage in tbe state court on condition that no claim in bankruptcy would be filed for any deficiency. But, inasmuch as no marked laebes were shown, ” owing to failure by tbe mortgagee-to subsequently prosecute tbe suit to judgment, tbe court held that tbe contended laebes were not so great as to warrant estopping tbe mortgagee from proving tbe deficiency after a sale. Ordinarily a pledgee, after sale of tbe pledged property, may prove his claim in bankruptcy for any deficiency (section 57b; and see Collier on Bankruptcy, vol. 2, pp. 1147, 1148), unless, of course, there was negligence in properly handling tbe security or protecting himself from loss.- Nothing appears here to-show that, on seizure and sale of tbe warehouse scrap iron, a larger price could have been obtained than tbe depreciated value-found by tbe referee, or that tbe general creditors were prejudiced in this particular.

Accordingly I incline to tbe. view that claimant’s asserted negligence in possessing itself of tbe property has no relation to tbe sales price that in all probability it would have received. The question certified, as stated in the outset, must he answered in the negative.

The order, therefore, of the referee is affirmed.  