The Hanover National Bank answered this bill August 14, 1893. In its answer it states that it knew nothing of the relations existing between the complainants and the Nashville Savings Bank and its president and cashier, and that it knew nothing as to the settlement made by complainants with the Saxes further than is contained in an exhibit to its answer. It admits that George Rosenheim visited New York City soon after the suspension of the Nashville Savings Bank, and had an interview with the officers of the Hanover National Bank. It says that the substance of this interview was that complainants desired an extension of time in which to pay their indebtedness to the Nashville Savings Bank, which indebtedness was held by it. It avers that the validity of the notes of the complainants held by it was admitted, and that complainants promised to pay the same in full. It alleges that complainants insisted upon its granting them an extension of time upon their paying a fixed sum monthly, to be credited upon the indebtedness held by it, and that a contract to this effect was prepared by complainants. It says, however, that it demanded that the assignee of the Nashville Savings Bank should agree to it before the same was signed, and that this proposition was submitted to the assignee of said bank, and he declined to sign the same because the extension asked extended beyond the time for his settlement under the deed of assignment to him. It is further said that complainants then offered to deliver to the Hanover National Bank three notes aggregating $9,000, with personal security thereon, to be held by it as additional collateral security for the payment of their indebtedness, but that it was distinctly understood at the time this was done and at the time the monthly payments tendered were received that no agreement had been made for any extension of time, in which the payment of the indebtedness of complainants to it would be postponed. It avers that all payments made by complainants had been credited upon their indebtedness held by it, and that all additional collaterals offered by them had been placed in the hands of its attorney for the purpose of securing their indebtedness to it, "with the distinct understanding, however," says the answer, "upon the part of all the parties, that no agreement of any kind whatever would be made by the respondent bank looking to the postponement of the payment of the indebtedness of the complainant to it." It avers that it had used all proper efforts to collect the indebtedness due to it from the Nashville Savings Bank, and that it had sought to collect the collaterals held by it from all solvent creditors. It says that it is true that at the date of the assignment of the Nashville Savings Bank, it herd the note of said bank for $25,000, dated June 2, 1891, and due in September thereafter, and that it held collaterals amounting to $39,351.90 to secure the same. It sets out with its answer the said note and the col53 S.W.-14

laterals held by it. It also files with its answer an exhibit, which sets forth fully the account of the Nashville Savings Bank with it from the date of its assignment to May 12, 1892, when the statement was prepared, and it also sets out various payments received from the complainants since said statement, and avers that its statement includes every payment made by complainants to it down to the filing of the will. It denies that complainants agreed to protect their notes only upon condition that respondent protected their notes in the surplus of collaterals over and above its debt against the Nashville Savings Bank; and it avers that the only promise made by it was that it would use its best endeavors to collect all the indebtedness held by it as collateral to secure the payment of the $25,000 note due by the Nashville Savings Bank. It further avers that it refused to sign the written agreement prepared by complainants, because the assignee of the Nashville Savings Bank refused to agree to the extension of the time therein provided for. It denies that the indebtedness of the Nashville Savings Bank to it had been about paid, and it avers that a large balance is still due it, as is shown by the exhibit to its answer. It insists that it has the right to collect the indebtedness due it from any source it sees proper; and its contention is that, if any equities exist as between the parties owing these collaterals, it is a matter of adjustment between themselves, and that it cannot be forced to await this adjustment before collecting the indebtedness due it. It insists that a considerable portion of the indebtedness due it had never been paid, and that it is advised that some of the parties owing the collaterals held by it are hopelessly insolvent. It says, with respect to the Muskovitz note, that it was advised that the parties owing Isaid note were insolvent, and that they had disposed of their property, and that nothing could be made out of them at law, and that for this reason no suit was brought against them by it. It says that it filed the bill against Brown & Kornman upon their note, and that the same is pending in the court undecided. It says that it placed the note of D. S. Hyman, agent, in the hands of its attorneys for collection, and that a bill was prepared by them for the purpose of commencing suit upon the same, but that upon information received by said attorneys, deemed to be reliable, the prosecution of the suit was thought to be useless, and thereupon the bill was never filed. The answer says that it is true that complainants have deposited with J. M. Head certain notes as additional collaterals for the payment of their indebtedness to it, and that said notes have been held by said Head, and, when collected, the proceeds, less costs of collection, have been remitted to it, for which credit had been duly given. It also says that it is advised that Head still holds in his possession a number of said notes, left with him by complainants

for collection, but denies that they are sufficient in amount to satisfy the indebtedness of complainants to it. It denies that the complainants, in addition to the $9,000, have paid $1,500 to the respondent. It denies that complainants had a right to compel it to proceed against the makers of other collateral notes held by it, and insists that it has the right to proceed against any one or all of the parties whose notes are held by it as collateral to secure the $25,000 note against the Nashville Savings Bank in any manner it sees proper, until said $25,000 note has been paid in full. It further insists that by the express terms and provisions of the $25,000 note held by it against the Nashville Savings Bank the notes of complainants were placed "as collateral security for payment of this or any other liability or liabilities of said bank, due or to become due, or which may be hereafter contracted," and that it was invested with full power and authority to sell, assign, and deliver the whole or any part of the collaterals held by it, without advertisement or notice, which were expressly waived, and that, until the amount due respondent for the Nashville Savings Bank was paid, complainants had no right to question the disposition made by it of any portion of said collaterals. It avers that it had used its best efforts to collect all notes held by it on the indebtedness due it from the Nashville Savings Bank, and it further avers that, should the complainants pay the entire amount due from them, there would still be due a considerable amount on the note of the Nashville Savings Bank. This answer sets out, as Exhibit 1, a compromise and agreement between the Nashville Savings Bank and a number of its creditors, and it insists that this compromise settlement was signed and assented to by the complainants Rosenheim Bros. & Co.

J. M. Head, assignee, answered this bill of the Rosenheims, and it need only be said that he took the same position that was taken by the Hanover National Bank.

The Hanover National Bank, May 27, 1893, filed its bill against Louis and George Rosenheim and D. S. Morse individually and as members of the firm of L. Rosenheim Bros. & Co. This bill avers, in substance, that May 28, 1891, defendants, under the firm name of L. Rosenheim Bros. & Co., executed their note payable to the order of Max Sax, cashier, for the sum of $2,500, due in three months, and that this note was duly indorsed by said Sax, cashier, to complainant bank, before maturity, for a valuable consideration, and that it was then held and owned by complainant bank. It states that said note is entitled to a credit of $1,018.03, as of date May 12, 1893, and that the balance, with interest, is still due and unpaid. It further avers that said Rosenheim Bros. & Co. executed two other notes to said Sax, cashier, each for $3,750, and that these notes had been indorsed, before maturity, for a valuable consideration, to complainant bank.

It

Said notes are exhibited with its bill. avers that payment of said notes had been frequently demanded, and that notes, with interest, except the credit before referred to, were still due and unpaid. It asks a recovery for the amount of said notes.

Louis and George Rosenheim answered this bill November 16, 1893. They deny that they owed the complainant bank the notes sued on, in the sense claimed in the bill, and they aver that these notes were held by the complainant bank simply as collaterals. They also aver that said notes have been settled, and that the agreement for the settlement is now being carried into effect. They say that large payment had been made by them on said notes, and accepted by complainant bank, in pursuance of the agreement between them, and even judgment made since the filing of the bill. In this answer it is further averred that in June the Nashville Savings Bank held their notes, amounting to some $38,000, secured by collaterals. It is also averred that they had large deposits in said bank, and that the bank, being hard pressed, borrowed from them notes amounting to $15,000. They aver that the account between them and the said Nashville Savings Bank was entirely balanced; that the bank failed June 22, 1891, and that they then for the first time learned that the Nashville Savings Bank had sold or hypothecated all of the notes, as well as their collaterals, the two having been separated and disposed of to different parties, leaving the bank indebted to them in a very large amount. They aver that, having heard that the complainant bank held some of the Nashville Savings Bank's paper, one of them went to New York, soon after the failure of said bank, to see the officers of the complainant bank, and with the sole purpose of settling the notes by obtaining an extension of time, as he had already effected such arrangements with the Nashville banks which held some of respondents' other notes and collaterals received by them from the Nashville Savings Bank. They aver, in this answer, as was averred in their bill, that they were informed by an officer of the complainant bank that they held $9,000 of respondents' notes, and held the three notes sued on in this bill, and that the complainant bank held as collateral over $39,000 to secure its note of $25,000 against the Nashville Savings Bank. They say that they fully explained their relations with the Nashville Savings Bank, and that they agreed to protect and pay their notes amounting to $9,000 upon the express condition and promise on the part of the complainant bank that it would protect their interest, with respect to the three notes sued on, out of the surplus of the collaterals held by it. It is then averred that the complainant bank wholly failed to protect their interest, as it had agreed to do, and as it was bound to do as a matter of law. It is then charged that the com

general assignment to J. M. Head, assignee, for the benefit of all its creditors; that, after said assignment had been made, L. Rosenheim Bros. & Co. made an arrangement with the Hanover National Bank, in pursuance of which, in order to obtain an extension of time upon their said notes held as collateral, they executed and delivered to the Hanover

bank should be charged with the amount of this note. They then set out the agreement that was entered into between them and the complainant bank, and aver that when the representative of the respondent returned to Nashville they had their attorney to reduce the agreement to writing; that it was reduced to writing, and sent to the complainant bank; that it returned it, unsigned, for the signature of the Nashville Savings Bank and its assignee; that the savings bank immediately signed it, but that Mr. Head, the assignee of the bank, at first declined, because the extension of the time asked extended beyond the period when, under the terms of the assignment to him, he had to settle his trust. They aver, however, that Mr. Head did, in effect, finally agree to the extension, and that thereafter they had complied with their agreement by remitting and making payments to the complainant in accordance with its terms. They then set out various payments made to complainant. The insistence is that they are entitled to the benefit of all the collaterals held by the complainant, and also that the complainant should have collected or presented its claim to the Nashville Savings Bank, and received its proper pro rata out of the assets of said bank.

Morse answered the bill, simply averring that he was not a member of the firm of L. Rosenheim Bros. & Co.

A large amount of proof was taken in the causes, and it seems that they were heard together before the Honorable Morton B. Howell, special chancellor, January 3, 1896. He found that June 2, 1891, the Nashville Savings Bank borrowed from the Hanover National Bank $25,000, for which it executed its note, payable September 2d after date, without grace, and that, to secure the same, it deposited with the Hanover National Bank certain collaterals, consisting of promissory notes of various parties, payable to the Nashville Savings Bank, and indorsed by it to the Hanover National Bank; that the note executed by the Nashville Savings Bank to the Hanover National Bank on its face provided that said savings bank's promissory notes had been deposited with it as security for the payment of this or any other liability or liabilities of theirs to said bank, due or to become due, or which may hereafter be contracted; that among the collaterals deposited were three notes of L. Rosenheim Bros. & Co., one for $2,500, and the other two for $3,750 each; that June 22, 1891, the Nashville Savings Bank failed, and executed a

cure the payment of which they put into the hands of the attorneys of the Hanover National Bank certain collaterals, and that, previous to the filing of their bill, they had paid a portion of said notes; that Brown & Kornman paid, on July 17, 1891, $825.27, to the Hanover National Bank, for which credit was given on their note for $2,000; that the Muskovitz note for $5,000 was by the Hanover Bank delivered to the Nashville Savings Bank, and the note of Max Sax, cashier, accepted in lieu thereof; that the Hyman, agent, note for $4,000 was not collected, and is still held by the Hanover National Bank. The decree recites that: "It being represented by Rosenheim Bros. & Co. that the notes executed by them to the Nashville Savings Bank, and pledged as collaterals, as aforesaid, were made purely for accommodation, and were without consideration; that the Nashville Savings Bank was indebted to them at the time of its failure on account of large deposits made to it by them, and of the use, for its own benefit, of their collaterals given to said bank to secure loans made by it to them, and that in this manner the account of said firm and of said bank were, at the time of the failure of the latter, about balanced; and it being further represented by Brown & Kornman that at the time of the failure of the Nashville Savings Bank said bank was indebted to them on settlement to the amount of $1,174.73, and Rosenheim Bros. & Co. and said Brown & Kornman claiming the existence of said equities between said Nashville Savings Bank and themselves as a reason why no further sum should be paid by either of them upon their said note; and it further appearing that on March 14, 1892, Rosenheim Bros. & Co. compromised and settled their accounts with the Nashville Savings Bank, and executed a written release, for a stated consideration, to said savings bank, and agreed to the discharge of its assignee, at the same time taking from said bank a private paper, in the nature of a defeasance, whereby said settlement was not to hold good as regarding certain collaterals disposed of by said bank, as to the value of which said firm and the officers of said bank differ,"-the court, upon these holdings, was of opinion that, the collateral notes, having been indorsed and transferred before maturity to the Hanover National Bank to secure the note for $25,000 held by it against the Nashville Savings Bank, were held by the Hanover National Bank for value, and that no equities between the makers and payees of these said notes can be asserted; and that, so far as said col

lateral notes were held to secure a pre-existing indebtedness, they are subject to any equities existing at the time of the transfer, and are not subject to defenses arising after such transfer; and that the Hanover National Bank is entitled to recover from said Rosenheim Bros. & Co. and Brown & Kornman, upon their note, the amount of the balance to be found due to it upon said note, for which said several notes were deposited as collateral. He held that a settlement publicly made by a creditor with an insolvent debtor, accompanied by his release and the discharge of his assignee, can in no wise be affected by a private agreement, but must act as an estoppel against such creditor claiming thereunder. The court was further of opinion that the acceptance by the Hanover National Bank of said promissory notes as collateral security to said note for $25,000 imposed upon it the duty of a trustee as to them, and required that it should exercise due diligence in their collection, and that any failure to take steps, in the ordinary course of collection, whereby a collateral is lost, or rendered in whole or in part ineffectual, to the parties interested, will charge said bank to the extent of the loss thus sustained. He thereupon decreed that the causes be referred to the master, who, from the proof on file, and such other proof as might be produced, was directed to ascertain and report: (1) The amount due to the Hanover National Bank, for the security of which said collateral notes were held. (2) The amount by which said indebtedness to the Hanover National Bank is to be credited on account of payment of money. (3) The amount with which the Hanover National Bank should be charged on account of failure to collect any part of said collateral notes, or other failure in duty. (4) What, of said collateral notes, remain uncollected. (5) In case a balance be found due to the Hanover National Bank, by whom, and in what proportion, the same should be paid.

He re

The master filed his report under the order of reference October 16, 1897. ported: (1) That the amount due the Hanover National Bank, to secure which it held the collateral notes mentioned in the order of reference, was $25,000, with interest from September 2, 1891. (2) He exhibits, in a schedule, the payments made on the $25,000 note. He reports the balance due, less attorneys' fees expended in the collection of the payments and in suits on collaterals, to be $4,563.27. The attorneys' fees reported by him amount to $2,219.55. These sums, added, make the sum due the Hanover National Bank as of October 2, 1897, as reported by the master, $6,782.82. (3) He says that the decree ordering the reference adjudges that the Hanover National Bank occupied the position of trustee to the collateral notes held by it, and that the duty was imposed on it "to exercise due diligence in their collection, and that any failure to take steps in the ordinary course of collection, whereby a col

lateral was lost in whole or in part, the bank should be charged to the extent of such loss." He reports that it appears from the deposition of George Rosenheim that the Hanover National Bank was notified that the firm of L. Rosenheim Bros. & Co. had a set-off against the Nashville Savings Bank, so far as their notes were concerned pledged to it as collaterals, and that it agreed to protect them in the surplus of its collateral. He further reported, under this head, that the Hanover National Bank surrendered the Muskovitz collateral note, and took in its stead the demand note of Sax for $5,000, and that this note of Sax had not been paid, and that Muskovitz settled his note with Sax. He also reported, under this head, that the Nashville Savings Bank settled with the most of its creditors on the basis of 15 per cent. cash, notes for 10 per cent., and 75 per cent. in trustee's certificates issued against certain property conveyed to the Nashville Trust Company, trustee. He further reported, under this head, that the Hanover National Bank had made no demand for its pro rata on its $25,000 note out of the assets of the Nashville Savings Bank, or under said bank's aforesaid settlement with most of its creditors, but that it released the assignee from any claim therefor, and did not sign the said settlement of the Saxes. He also reported that, as between Brown & Kornman and the Nashville Savings Bank, the former had a set-off against the latter to the full amount of the balance due on their note held as collateral by the Hanover National Bank. He reported that, as between the Hanover National Bank and L. Rosenheim Bros. & Co., the former should be charged with the following amounts, in addition to the money payments made on its $25,000 note: The Muskovitz $5,000 note, with interest, both amounting to $6,855.83; the cash payment made by the Nashville Savings Bank to its creditors, with interest, amounting to $4,950,-total, $11,805.83. He reported that, as between said Brown & Kornman and the Hanover National Bank, the latter should be charged with the amount of the Muskovitz note, with interest. He reports the uncollected collaterals to be the balance on the Brown & Kornman note, note of D. S. Hyman, agent, for $4,000, and three notes of Rosenheim Bros. & Co. for $10,000, less a credit of $2,750, and the demand note of the Saxes for $5,000. All these amount to $12,250.

The Hanover National Bank, November 18, 1897, filed seven exceptions to this report. The first exception goes to the point that the master should have found, in addition to the $25,000 due it, two notes rediscounted by it for the Nashville Savings Bank,-one of the Shoal Creek Iron Company, for $5,102.50, due September 22, 1891; and the other on C. D. Porter, for $931.87, due July 24, 1891. Under this exception it is insisted that, under the contract hypothecating the collaterals, they were bound for these two notes. This

exception was overruled. Its second exception is, in effect, that the master's calculations of interest, and also his report as to a credit of $250 of date April 4, 1893, were incorrect. It is insisted that this $250 payment was consumed and credited on one of the two notes of L. Rosenheim Bros. & Co., rediscounted by it for the Nashville Savings Bank, and hence should not have been credited on the collateral notes. The chancellor's action on this exception is thus expressed: "I do not know as to this. The clerk and master will investigate, and correct if any mistake appears, and this matter is referred to him for this purpose." Its third and fourth exceptions, in substance, are that the master erred, as between it and Rosenheim Bros. & Co., in charging it with the Muskovitz note, with interest, and the cash payment of 15 per cent. made by the Nashville Savings Bank under its compromise settlement with a number of its creditors. These exceptions were sustained. Its fifth exception is, in effect, that the master erred in charging it, in favor of Brown & Kornman, with the Muskovitz note, with interest. This exception was overruled. Its sixth exception is that the master erred in failing to charge interest on the balance due on the Brown & Kornman note, and interest on the D. S. Hyman, agent, note; and also erred as to the correct amount due on the three notes of L. Rosenheim Bros. & Co., in that he allows a credit thereon of $3,750, and in that he failed to calculate interest upon the amount due, and also interest upon the demand note of the Saxes for $5,000. The action of the chancellor on this exception is that "the master will recast account according to opinion of court, and make corrections, if any errors." Its seventh exception is that the master failed to report as to the amount due upon rediscounted paper held by it, for the payment of which it was authorized to hold any portion or all of the collaterals deposited with it as security for the $25,000 note, as required by the decree of the chancellor. This exception was overruled. October 4, 1898, the Hanover National Bank, by permission of the court, filed an additional exception. It is to the effect that the master erred in crediting Rosenheim Bros. & Co. with a payment of $1,000, made November 6, 1893, and one of $500, made February 2, 1894, to J. M. Head, as its attorney, inasmuch as their bill filed in this cause had enjoined the remittance of the judgment to it, and caused them to be retained here to await the further order of the court. It is insisted under this exception, in the first place, that no credit should be given for these payments until ordered by the court, and, in the second place, that at least no interest thereon should be allowed pending its retention under their injunction. The record shows that this exception was sustained, and thereafter the record recites that action on it by the master is waived for the purpose of bringing it directly before the chancellor.

L. and G. Rosenheim filed four exceptions to the report. Their first exception is to the master's allowance of $1,850 attorneys' fees for services in litigation about the collateral notes held by the Hanover National Bank, and the interest thereon, amounting to $192.40. It is said, as a part of this exception, that these fees are not chargeable to exceptants, and cannot be made to reduce the amount due them on an accounting in this cause, and, moreover, that their allowance is not authorized by the decree of the court and the order of reference. The record recites that this exception was overruled. Their second exception is that the master erred in charging the Hanover National Bank only 15 per cent. pro rata from the assets of the Nashville Savings Bank. It is said, as a part of this exception, that the proof shows that creditors who accepted the compromise offered by the Nashville Savings Bank received 15 per cent. cash, 10 per cent. in secured notes due in 12 months, and 75 per cent. in certificates issued by the Nashville Trust Company, based on a mortgage on valuable real estate; and that creditors who did not accept said compromise were paid 50 per cent. cash. The record recites that this exception was overruled, and then recites that action on it and the preceding one by the master was waived. Their third exception is that he should have found that the Brown & Kornman note was good and solvent. It seems that this exception was sustained. They further except and say that the master erred in not charging the Hanover National Bank with the amount of the $4,000 Hyman, agent, note. It is said, as a part of this exception, that Mrs. Luerman, his principal, had on deposit in the Nashville Savings Bank $15,000, and received under its compromise settlement $2,100 and other securities, which fact the Hanover National Bank knew through its officers and agents. Brown & Kornman except to the report, and say that the master erred in allowing the fees charged by attorneys, amounting to $1,850, and interest thereon, $192.40, and also the items of cost paid, $59.75. It is said, as a part of this exception, that these fees were allowed for services rendered the Hanover National Bank, and at its instance, after the assignment of the Nashville Savings Bank, and long after the negotiations had between the Rosenheims and the Hanover National Bank. It is claimed, as a part of this exception, that these items should be stricken from the account as between them and the Hanover National Bank. The master overruled this exception

The matters raised by the exceptions came before the chancellor. He held that the exception of the Hanover National Bank with respect to its right to hold the collateral notes as a security for the C. D. Porter note and the Shoal Creek Iron Company note was not well taken, and overruled the same. He recommitted the matter embraced in the second exception of the Hanover National Bank, for the purpose of enabling the master to make a par