question to the rules of law governing the administration of estates in bankruptcy; but there is no warrant for any such reference. The rules in bankruptcy cases proceeded from the express provisions of the statute, and they are not at all controlling upon a court administering, in equity, upon the estates of insolvent debtors. The bankruptcy act requires the creditor to give up his security in order to be entitled to prove his whole debt; or, if he retains it, he can only prove for the balance of the debt after deducting the value of the security held. The jurisdiction in bankruptcy is peculiar and special, and a particular mode of administration is prescribed by the act."

"Moreover, I submit that the propositions[172) now adopted, which reject the bankruptcy rule, rest on reasoning which, if it be logically applied, requires the enforcement of the bankruptcy rule in its integrity. It seems to me it has been shown by the doctrine an nounced by Lord Hardwicke in 1743 (Bromley v. Goodere, supra), that the stoppage of interest on the claims of all creditors was but an essential evolution of the principle of ratable distribution. This stoppage of interest at the period named is now upheld by the rule sanctioned by this court. This, then, takes the provision of the bankruptcy rule which favors the secured creditor, and which arises alone from ratable division, and gives him the benefit of it, while at the same time rejecting the obligation to account which arises from and depends on the very princienforced. To repeat, it strikes my mind that the conclusion now announced is this, that the obsolete chancery rule both applies and does not apply, that the bankruptcy rule at the same time does not apply and does apply, the result of this conflict being to so interpret the act of Congress as to strike from it the beneficent provision for equality of distribution among general creditors.

Having thus eliminated the bankruptcy rule, the court reviewed the decisions in Mason v. Bogg and Kellock's Case, and held those cases to be controlling. The Reming-ple of ratable distribution which is in part [171]ton Case, *therefore, as well as those of which it is a type, need not be further reviewed, as the fundamental error upon which they rest has been fully stated in what I have previously said.

It is necessary, however, to call attention to the fact that in the cases which decline to apply the rule in bankruptcy, and refuse to enforce the provision for ratable distribution, there is an entire want of harmony as to the time when the rights of creditors are fixed with respect to the amount of the claim which may be proved against general assets; some holding that dividends are to be paid on the amount due at the date of insolvency, others on the amount due at the time of proof, and others upon the sum due when dividends are declared. This confusion is the necessary outcome of the erroneous premise upon which the cases rest. A similar confusion, moreover, I submit, is manifested by the rule now announced by the court; since while it is avowedly rested upon the defunct chancery rule exemplified in Mason v. Bogg and the Kellock Case, yet in effect it fails to follow the very rule upon which the decision is based. This is clear when it is borne in mind that the chancery rule was decided in both Mason v. Bogg and the Kellock Case to be that the amount of the claim of the creditor was fixed by the date when proof was actually made, and yet under the authority of the chancery rule and the cases in question the court now decides that the rights of the secured creditor are fixed by insolvency. Thus the chancery rule is applied and at the same time repudiated in an important particular, for the grave difference between allowing a secured creditor to prove only for the amount due when proof was made, and therefore compelling him to account for all collections realized on collaterals up to that time, and allowing him long after insolvency to prove, by relation, as of the date of the insolvency, and disregard the collections actually made, is manifest. In this connection it may not be amiss to call attention to the fact that if the bankruptcy rule was applied in the proof of claims, the amount of the claim would not vary, whether the date of insolvency or the time when proof was made was held to be the date when the rights of the creditor in the fund were fixed.

Mr. Justice Gray dissenting:

While also unable to concur in the opinion of the majority of the court, I prefer to rest my dissent upon the effect of the legislation of Congress, read in the light of the English statutes and decisions before the American Revolution, and of the judgments of the courts of the United States,-without particularly considering the cases in England in recent times, or the conflicting decisions made in the courts of the several states under local statute or usage, or upon general theory. As the course of reasoning in support of this view traverses part of the ground covered by the other dissenting justices, I shall endeavor to state it as shortly as possible.

The English bankrupt acts in force at the time of the Declaration of Independence, so far as they touched the distribution of a bankrupt's estate among his creditors, were the statute of 13 Eliz. (1571) chap. 7, § 2,[173] which directed the estate to be applied to the "true satisfaction and payment of the said creditors, that is to say, to every of the said creditors a portion, rate and rate alike, according to the quantity of his or their debts;" and the statute of 21 James I. (1023) chap. 19, § 8 (or § 9), which made more specific provisions against allowing any creditors, whether "having security" or not, to prove "for any more than a ratable part of their just and due debts with the other creditors of the said bankrupt." As appears on the face of this provision, the word "security" was evidently there used, not as including a mortgage or other instrument executed by the debtor by way of pledging part of his property as collateral security for the payment of a debt, but merely as designating a bond or writing which was evidence of the debt itself as a direct personal obligation;

and the objects of the provision would ap-| attachment under any of the laws of the inpear to have been to put all debts, whether dividual states, or of the United States, on by specialty or by simple contract, upon an the estate of such bankrupt (provided there equal footing in the ratable distribution of be no execution executed upon any of the real a bankrupt's estate, and to permit the real or personal estate of such bankrupt, before amount only of any debt, and not any larger the time he or she became bankrupts), shall sum named in a bond or other specialty, to not be relieved upon any such judgment, be proved in bankruptcy. 4 Statutes of the statute, recognizance, specialty, or attachRealm, 539, 1228; 2 Cooke's Bankrupt Laws ment, for more than a ratable part of his (4th ed.) [18] [33]; 1 Ib. 119: Bac. Abr. debt with the other creditors of the bankObligations, A; 3 Bl. Com. 439. rupt." Act of April 4, 1800, chap. 19, § 31; 2 Stat. at L. 30. That provision must have received the same construction that had been[175] given by the English judges to the statutes therein re-enacted. Tucker v. Osley (1809) 5 Cranch, 34, 42 [3: 29, 31]; Scott v. Armstrong (1892) 146 U. S. 499, 511 [36: 1059, 1063].

Neither of those statutes contained any provision whatever for deducting the value of collateral security and proving the rest of the debt. Yet from the earliest period of which there are any reported cases, it was uniformly held,-without vouching in any provision of the bankrupt acts other than those directing a ratable distribution among all the creditors, and had long before the American Revolution become the settled practice in the court of chancery, that a creditor could not retain collateral security received by him from the bankrupt and prove for his whole debt, but must have his collateral security sold and prove for the rest of the debt only. The authorities upon this point are collected in the opinion of Mr. Justice White.

The bankrupt act of 1841, which is well known to have been drafted by Mr. Justice Story, omitted that section, and made no specific provision whatever as to the proof of secured debts, but simply provided that "all creditors coming in and proving their debts under such bankruptcy, in the manner hereinafter prescribed, the same being bona fide debts, shall be entitled to share in the bankrupt's property and effects, pro rata, without any priority or preference whatsoever, except only for debts due by such bankrupt to the United States, and for all debts due by him to persons who, by the laws of the United States, have & preference, in consequence of having paid moneys as his sureties, which shall be first paid out of the assets." Act of August 19, 1841, chap. 9, § 5; 5 Stat. at L. 444.

Yet Mr. Justice Story, both in the circuit court and in this court, laid it down as an undoubted rule, that a secured creditor could prove only for the rest of the debt, after deducting the value of the security given him by the bankrupt himself of his own property. Re Babcock, 3 Story (1844) 393, 399, 400; Re Christy [Ex parte City Bank (1845) 3 How. 292, 315 [11: 603, 613].

After the American Revolution the provision of the statute of James I. was thrice re[174]enacted, with little modification. *Stats. 5 Geo. IV. (1824) chap. 98, § 103; 6 Geo. IV. (1825) chap. 16, § 108; 12 & 13 Vict. (1849) chap. 106, 184. But the rule established by the decisions and practice of the court of chancery, as to the proof of secured debts, was never expressly recognized in any of the English bankrupt acts until 1869, when provisions to that effect were inserted in the statute of 32 & 33 Vict. chap. 71, § 40. And there is no trace of a different rule in England, in proceedings in equity for the distribution of the estate of any insolvent debtor or corporation, until more than sixty years after the Declaration of Independence. Amory v. Francis (1820) 16 Mass, 308, 311; Greenwood v. Taylor (1830) } Russ. & M. 185; Mason v. Bogg (1837) 2 Myl. & C. 443. In 1868, indeed, the court of chancery declined to apply the bankruptcy rule to proceedings under the winding-up acts. Kellock's Case, L. R. 3 Ch. 769. But Parliament, by the judicature acts of 1873 and 1875, applied that rule to such proceedings. Stats. 36 & 37 Vict. chap. 66, § 25 (1); 38 & 39 Vict. chap. 77, § 10. And Sir George Jessel, M. R., has pointed out the absurdity of having different rules in the cases of living for his whole debt. ing and of dead bankrupts. Re Hopkins In 1864, Congress, in the first national (1881) L. R. 18 Ch. Div. 370, 377.

The first bankrupt act of the United States, enacted in 1800, was in great part copied from the earlier bankrupt acts of England, and condensed the provisions, above mentioned, of the statutes of Elizabeth and of James I. in this form: "In the distribution of the bankrupt's affects there shall be paid to every of the creditors a portion-rate, according to the amount of their respective debts, so that every creditor having security for his debt by judgment, statute, recognizance, or specialty, or having an

The omission by that eminent jurist, when framing the act of 1841, of all specific provisions on the subject as unnecessary, and his repeated judicial declarations, after he had been habitually administering that act for three or four years, recognizing that rule as still in force, compel the inference that a general enactment for the ratable distribution of the estate of an insolvent among all the creditors had the effect of preventing any individual creditor, while retaining collat eral security on part of the estate, from prov

bank act, after providing for the appoint-
ment of a receiver with power to convert the
assets of any insolvent national bank into
money and pay it to the Treasurer of the
United States, subject to the order of the
Comptroller of the Currency, further pro-
vided that "from time to time the Comptrol-
ler, after full provision shall have been first[176]
made for refunding to the United States any
such deficiency in redeeming the notes of
such association as is mentioned in this act,
shall make a ratable dividend of the money
so paid over to him by such receiver on all

such claims as may have been proved to his
satisfaction or adjudicated in a court of
competent jurisdiction." Act of June 3,
1864, chap. 106, § 50; 13 Stat. at L. 115.

whose estate he seeks to prove; and that a creditor proving against the estate of a partnership is not bound to account for security given to him by one partner, nor a creditor proving against the estate of one partner to account for security given him by the part. nership. Ex parte Peacock (1825) 2 Glyn & J. 27; Re Plummer (1841) 1 Phill. Ch. 56; Rolfe v. Flower (1866) L. R. 1 P. C. 27, 46; Re Babcock, 3 Story, 393, 400. To require a creditor, before proving against the estate of one partner, to surrender to the assignee of that estate security held from the partnership, would be to add to the separate estate property which should go to the estate of the

The words of this act, requiring "a ratable
dividend" to be paid "on all claims" proved
or adjudicated, are equivalent to the words
of the last preceding bankrupt act, direct-
ing that "all creditors coming in and proving
their debts . . shall be entitled to share"
in the estate "pro rata, without any priority
or preference whatsoever," and, in view of
the judicial construction which had been
given to that act, may reasonably be consid-
ered as having been intended by Congress to
have the same effect of preventing a credit-partnership.
or secured on part of the estate from proving
his whole debt without relinquishing or ap-
plying the security, although neither act spe-
cifically so provided.

If such was the rule under the national bank act of 1864, it could not be affected, as to national banks, by the express affirmance of the rule in the bankrupt act of 1867, or by the re-enactment of the provisions of each of these two acts in the Revised Statutes. And the extension of the bankrupt act of 1867 to "moneyed business or commercial corporations and joint-stock companies" increases the improbability that Congress intended banking associations to be governed by a different rule from that governing other private corporations, as well as natural persons, in regard to the effect which a creditor's holding collateral security should have upon the sum to be proved by him against an insolvent estate. Act of March 2, 1867, chap. 176, §§ 20, 37; 14 Stat. at L. 526, 535; Rev. Stat. §§ 5075, 5236.

Reliance has been placed upon the remark of Mr. Justice Swayne in Lewis v. United States, 92 U. S. 618, 623 [23: 513, 515], that "it is a settled principle in equity that a creditor holding collaterals is not bound to apply them before enforcing his direct remedies against the debtor." But he added, [177]"This is admitted," so that it is evident that the point was not controverted by counsel, or much considered by the court. Nor was it necessary to the decision, which had nothing to do with the right of an individual creditor holding security upon the separate property of the debtor to prove against his estate in bankruptcy; but simply affirmed the right of the United States, holding a debt against an English partnership, to prove the whole amount of the debt against one of the partners, an American, in proceedings in bankruptcy here under the act of 1867, without surrendering or accounting for collateral security given to the United States by the partnership. The United States were not bound by the bankrupt acts, nor subject to the rule of a ratable distribution, but were entitled to preference over all other creditors. United States v. Fisher, 2 Cranch, 358 [2: 304]; Harrison v. Sterry, 5 Cranch, 289 [3: 104]; United States v. State Bank, 6 Pet. 29 [8: 308]; United States v. Herron, 20 Wall. 251 [22: 275]. And, even as to a private creditor, it has always been held that he is obliged to account for such securities only as he holds from the debtor against 173 U. S. U. S., Book 43.

42

The ground and the limits of the rule in bankruptcy were clearly stated by Lord Chancellor Lyndhurst in Plummer's Case, above cited, in which a partnership creditor was allowed to prove a partnership debt against the separate estate of each partner, without surrendering or realizing security held by him from the partnership. The Lord Chancellor said: “Now, what are the principles applicable to cases of this kind? If a creditor of a bankrupt holds a security[178, on part of the bankrupt's estate, he is not entitled to prove his debt under the commission, without giving up or realizing his security. For the principle of the bankrupt laws is that all creditors are to be put on an equal footing, and therefore, if a creditor chooses to prove under the commission, he must sell or surrender whatever property he holds belonging to the bankrupt; but if he has a security on the estate of a third person, that principle does not apply; he is in that case entitled to prove for the whole amount of his debt, and also to realize the security, provided he does not altogether receive more than twenty shillings in the pound. That is the ground on which the principle is established; it is unnecessary to cite authorities for it, as it is too clearly settled to be disputed; but I may mention Ex parte Bennet, 2 Atk. 527; Ex parte Parr, 1 Rose, Bankr. Rep. 76; and Ex parte Goodman, 3 Madd. 373,-in which it has been laid down. The next point is this. In administration under bankruptcy, the joint estate and the separate estate are considered as distinct estates; and accordingly it has been held that a joint creditor having a security upon the separate estate is entitled to prove against the joint estate without giving up his security, on the ground that it is a different estate. That was the principle upon which Ex parte Peacock proceeded, and that case was decided first by Sir John Leach and afterwards by Lord Eldon, and has since been followed in Ex parte Bowden, 1 Deacon & C. 135. Now this case is merely the converse of that, and the same principle applies to it." 1 Phill. Ch. 59, 60.

This court, under the existing national bank act, approving and following the example of the English courts under the statute of 13 Elizabeth, above cited, has allowed creditors to set off, against their claims on the estate, debts due from them to the debtor whose estate is in course of distribution, although the statute in question in either case

657

contained no provision directing or permitting a set-off. Scott v. Armstrong, 146 U. S. 499, 511 [36: 1059, 1063]. In giving effect to a statute which simply directs an equal and ratable distribution of a debtor's estate among all creditors, without saying anything [179]about either collateral security or set-off, there would seem to be quite as much ground for requiring each creditor to account for his collateral security, for the benefit of all the creditors, as for allowing him the benefit of a set-off, to their detriment.

For the reasons thus indicated, I cannot avoid the conclusion that, under every act of Congress directing the ratable distribution among all creditors of the estate of an insolvent person or corporation, and making no special provision as to secured creditors, an individual creditor holding collateral security from the debtor on part of the estate in course of administration is not entitled to a dividend upon the whole of his debt without releasing the security or deducting its value; and that therefore the judgment of the circuit court of appeals should be reversed.

says: "It is apparent from the conceded facts that the water power in question did not exist while the stream was in its natural condition. Nor was it created by the erection of a dam by private persons for that sole purpose."

Plaintiffs below, defendants in error, should have made it appear, as the fact is, that the water power about which they are contending is created by a dam built by private persons, Mathew J. Mead and N. M. Edwards, riparian owners, in 1880, for the sole purpose of water power. This dam furnishes a head of 12 to 18 feet. Mills on this power cost about $70,000.

This private dam was across an unnavigable channel between islands Three and Four. Its legality cannot be questioned herein.

If its legality could be questioned by other parties, it cannot by the canal company, because, as the complaint recites

On August 1st, 1881, it, as riparian owner. leased to the Union Pulp Company, one of the plaintiffs below, "a constant flow of about 20,000 cubic feet of water per minute, parcel of and to be drawn from said Mead & Edwards water power, for hydraulic[181]

GREEN BAY & MISSISSIPPI CANAL Power, for a term of ten years, renewable for

COMPANY
บ.

PATTEN PAPER COMPANY et al.

(See S. C. Reporter's ed. 179–190.) Jurisdiction of state courts as to the rights of riparian owners.

one hundred years; which said leasehold in-
terest said Union Pulp Company still holds.
"That said Union Pulp Company has
erected on said lot a pulp mill worth about
forty thousand dollars ($40,000) and now
operates the same, running the same by said
water power."

Original defendant Kelso, for whom Reese
Pulp Company was afterwards substituted,
stands in the same relation to the canal com-
pany.

The rights and disputes of riparian owners as
to water which has found its way into the
An examination of the printed record will
unimproved bed of a stream must be deter-show that in many other respects the origi-
mined by the state courts, although they can- nal plaintiffs, defendants in error, have
not interfere with the control of the surplus failed to make the facts of this case appar-
water power incidentally created by a dam
and canal owned and operated by the United ent to this court.
States.

[No. 14.]

Submitted January 16, 1899. ruary 20, 1899.

II. This court seems to us to have held in 142 U. S. 269, 270, 35 L. ed. 1009, 1010, that it was necessary that there should be notice of taking while compensation could be had. Decided Feb- No other view seems admissible.

There were two petitions for rehearing of this case, which was decided at the present term, and reported in 172 U. S. 58, ante, p. 364.

The petitions for rehearing were as follows:

First Fetition for Rehearing. [180] *The opinion herein shows that the plaintiffs below, defendants in error, did not make the leading facts respecting their water power plain. Hence they respectively petition the Honorable Court for a rehearing upon the following grounds, being matters of fact only:

I. The claim of the original plaintiffs seems to have been lost sight of. This court 658

The notice of taking held sufficient in 142 U. S. 35 L. ed. was given to the Kaukauna Water Power Company only. There is no pretense of notice of taking as against the original plaintiffs herein, or any of the own ers on the Mead and Edwards power or middle channel. None of them were parties to that suit.

Speaking of this notice Mr. Justice Brown said: "Until this time there had been no active interference with any claim or riparian rights belonging to the water power company.'

Herein the original plaintiffs were, when the action commenced, ever since have been, and still are, using their water power between islands Three and Four to run their mills. One of them, Union Pulp Company, 173 U. S