Learned Hand, District Judge wrote:Opinion
If Rose Tostevin, the wife, had been a surety for the loan, it is settled that the payment would have been a preference under section 60b. Swartz v. Siegel, 117 Fed. 13, 54 C.C.A. 399; Re Lyon, 121 Fed. 723, 58 C.C.A. 143. Before insolvency the surety, by payment of the debt, gets through subrogation the status of a transferee, and that status protects him from loss. After insolvency, while he is, of course, still subrogated, his subrogation will not protect him. He must pay without recourse, and he loses to the extent of the insolvency. A payment to the creditor discharges him, therefore, precisely as though made directly to him. Hence it was inevitable that such a payment should be held a preference, whether made to the innocent creditor or to the surety; the effect was identical, whichever course was chosen.
If we now substitute a pledger of property upon the debt of another in the place of a surety, precisely the same situation arises. The pledgor will be entitled to exoneration against the principal. Robinson v. Gee, 1 Vesey, Sr., 251. If the pledge be sold, he is entitled through subrogation to the status of the principal, and upon insolvency he is certain to suffer a loss, measured by the extent of the insolvency. To the extent of the pledge he is the creditor, as much as though he had already discharged his property and taken an assignment of the claim. A payment to the creditor discharging the pledge is therefore a payment upon a claim upon which the pledgor cannot collect; his loss is equally relieved whether it is made to the pledgee or to him. The analogy is therefore perfect, and the same principle should apply to each case. It has in general been held that such a pledgor has all the rights of a surety. Dibble v. Richardson, 171 N.Y. 131, 63 N.E. 829; Bank of Albion v. Burns, 46 N.Y. 170; Price v. Dime Savings Bank, 124 Ill. 317, 15 N.E. 754, 7 Am.St.Rep. 367; *104 Rowan v. Sharps' Rifle Mfg. Co., 33 Conn. 1, 21-24. If so, he must be subject to his disabilities.
The defendant's point is good, so far as it goes, that the delivery was a bailment; but it does not touch the important features of the situation. It was a bailment, but something more; it gave the bankrupt the right to subject the property to the hazards of his own credit which a bailment does not do. When those hazards turned against the pledgor by the bankrupt's insolvency, she became subject to the limitations of all those who had assumed the chance; i.e., that what remained of his property should be subject to a trust for equal distribution. It made no difference in that aspect that the hazard was of the bankrupt's ability to redeem the pledge rather than to redeem any other of his promises. Only in case he succeeded in performing that promise could the parties resume the relation of simple bailor or bailee. This suit attacks, not the redelivery of the property bailed, which, taken alone, would have been innocent, but the necessary payment out of the bankrupt's own estate, which was a condition upon his power to redeliver. He had no right to prefer any one of all those who had parted with their property upon the equal chance that his projects might miscarry and his performances fail.
Decree reversed, and cause remanded for trial.
If you can't read seriously dense shit, you are fucked in law school. There are cases from the 1700s written in bizarre-o English. There are big words and absurd phrasing. Cases from the last, say, 30 years are better, but it's still all dense legalese.