44 U.S. 426
3 How. 426
11 L.Ed. 664
RICHARD NUGENT, ASSIGNEE OF ELIZABETH NORTON, IN
BANKRUPTCY, PLAINTIFF IN ERROR,
GEORGE W. BOYD, ISAAC T. PRESTON, AND ABNER
January Term, 1845
THIS case came up by appeal from the Circuit Court of the United States for East Louisiana, sitting as a court of equity.
The controversy was between the bankrupt's assignee, on one side, and a mortgage creditor and purchasers at the sale under state process of the mortgaged premises, on the other.
The points to be decided grew out of the bankrupt law, and especially out of the saving in favor of state liens in the 2d section, and the jurisdiction granted to the District and Circuit Courts of the United States in cases of bankruptcy by the 6th and 8th. The validity of certain rules extablished by the District Court of Louisiana, sitting in bankruptcy, was questioned, and the mortgage creditor, not having proved under the commission, claimed exemption from those rules, and asserted the right to pursue his prior lien in the state court.
The complainant's bill stated in substance, that Elizabeth Norton filed her petition to be declared a bankrupt, on the 9th May, 1842. On the 1st June, it was decreed accordingly, and Richard Nugent appointed assignee.
At the time, and long before the date of the petition, George W. Boyd, one of the defendants, was the holder of notes, secured by mortgage duly recorded according to the laws of Louisiana, for the sum of $9,000, on which judgment had been rendered, order of seizure and sale granted, and execution issued and been levied, all before the date of the bankrupt's petition. The levy took place on the 16th of February, 1842. The sale was the only proceeding after the date of the decree of bankruptcy; that decree being dated the 1st, and the sale taking place on the 4th of June, 1842.
The bill admitted that all the forms and notices, &c., required by the laws of Louisiana for the sale of mortgaged premises under execution, were observed; but set up the petition and decree of bankruptcy, made before the sale, and alleged, that before the property was sold the assignee gave written notice of the decree, and of his appointment as assignee under it, to the sheriff, the mortgage creditor, Boyd, and to Preston and Phelps, who afterwards became the purchasers of the mortgaged premises at sheriff's sale, cautioning them respectively, and claiming at the same time the right to stay the sale, and take the property into his own hands for sale and distribution under the rules of the bankrupt court. Copies of the proceedings in bankruptcy and of the rules of the bankrupt court were made exhibits to the bill. These general orders of the District Court of the United States for the district of Louisiana, sitting in bankruptcy, and purporting to be made in pursuance of the authority delegated to it by the Bankrupt Act, and especially the 6th section thereof, provided, in substance, that notice should be served on all creditors of the bankrupt who had any special mortgage, lien, or privilege. The assignee was authorized to take a rule on the mortgage creditor to show cause why the mortgaged premises should not be sold by the assignee; and the court would thereupon pass in order of sale, which order should ipso facto annul the mortgages, liens, &c., existing on the property sold, and upon its presentation to the recorder of mortgages, he should be required to cancel the inscription of all such mortgages, liens, &c., on his records; and the liens, privileges, & c., should attach to the proceeds in the hands of the assignee. The mortgage creditor was entitled, under certain reservations, to prescribe the terms of sale, and at such sale might become the purchaser, but was required to pay the expenses and commissions on the sale, and the surplus, if any, over and above the amount of his mortgage; but these privileges were allowed only on the condition of his filing the proof of his debt in the registry of the court.
The complainant alleged, that by the act of Congress the rules aforesaid made in pursuance thereof, and the proceedings thereunder in the case of the bankrupt, the sale should have been stayed, and the said George W. Boyd having been notified and cited to appear and contest the proceedings in bankruptcy, all the acts done under color of the state process, after the date of the petition, were irregular and void; that Preston and Phelps having also been notified and cautioned, they derived no title from the sheriff's sale, such sale being invalid.
The bill prayed that the sheriff's sale might be set aside, the title of Preston and Phelps declared null; that George W. Boyd be compelled to come into the District Court, sitting in bankruptcy, and conform himself in all things to the rules of said court in such cases, and for other and general relief.
To this bill there was a demurrer, which, admitting all the facts, insisted, in point of law,
1. That the petition, decree, appointment of the assignee, &c., did not prevent the mortgage creditor from enforcing his lien under the process of the state court.
2. That the District Court had no right to pass the rules insisted on.
3. That the mortgage creditor was not bound by law to submit his claims to the District Court, sitting in bankruptcy, but might elect not to prove his debt, and still pursue his lien and remedy under the law.
4. That the title obtained at the sheriff's sale was, according to the facts set forth by the complainant, a good title for the purchasers against the assignee.
On the hearing of the argument on the bill and demurrer, the Circuit Court sustained the demurrer, and ordered the bill of the complainant to be dismissed.
From this decree the complainant appealed.
The cause was submitted, upon printed arguments, by Richard Nugent, for the appellant, and Wilde and Henderson, for the appellees.
The argument for the appellant was as follows:—
It having been agreed by all parties to submit this case in printed briefs, so as to expedite its decision, and the final proceedings in the bankrupt court, the appellant respectfully represents, that the facts set forth by the bill being admitted by the demurrer, and substantially set forth in the statement of the appellees, it is unnecessary here to repeat them. The contest is one entirely of law; and as the best and most conclusive argument he can present, the appellant annexes hereto certain decisions heretofore made on the points in controversy in similar cases, by the Supreme Court of Louisiana, and the Circuit Court of the United States for the Louisiana district. These decisions were all rendered after elaborate argument, on due deliberation, and disclose so fully the reasons on which they are founded, that it cannot be requisite for the appellant to do more than state the principles established by them. These courts have considered, that, to prevent confusion, and secure uniformity of action and decision, it is indispensable that all the claims of all the creditors, without distinction, be brought before the bankrupt court, and that all the property to which the bankrupt may have any claim shall be administered, sold, and distributed, under the authority of that court, no matter what liens exist upon it. These liens themselves cannot, indeed, be disputed or impaired, and against that the rules of the bankrupt court have made due provision; but they cannot be enforced under state laws and process, for that must inevitably disturb the uniform and harmonious administration of the bankrupt act.
Hence it has been held, that, from the moment of filing the petition, the bankrupt became incompetent to stand in judgment in the state courts, and that the assignee in bankruptcy has the right to cause the state process to be stayed, to take the property into his own possession, and to sell it free from the mortgage, leaving to the mortgagee the right to claim the proceeds in the court of bankruptcy, under such rules as that court may prescribe. Such has been the practice of the bankrupt court in Louisiana, and the rules annexed as an exhibit to the bill were adopted by the District Court of the United States, in analogy to, or conforming with them. The power to prescribe such rules is given by the 6th section of the Bankrupt Act, and they contain nothing repugnant to the proviso in the second section, since the state liens are saved.
There is also a distinction to be noted between the legal effect of a mortgage in the state of Louisiana, and the common law mortgage. Under the latter, the legal title passes to the mortgagee. According to that system, therefore, the assignee does not acquire the legal title by the assignment, and mortgaged property consequently is not subject to administration and sale, as part of the bankrupt's effects. The mortgage of Louisiana is thus defined: 'Mortgage is a right granted to the creditor over the property of his debtor, for the security of his debt, and gives him the power of having the property seized and sold in default of payment.' Civil Code of Louisiana, art. 3245.
Hence the legal estate in, and possession of, the mortgaged premises in Louisiana, remains in the mortgagor, and passes to his assignee. Being seized of the legal estate and in possession, it is for him to sell. In other states, the legal title passing to the mortgagee does not rest in the assignee of the bankrupt mortgagor, and consequently the decisions in other states are not applicable here.
The argument for the appellees was the following:
The decisions of the Supreme Court of Louisiana, and the Circuit Court of the United States, for the Louisiana district, as well as the rules in cases of bankruptcy, adopted by the District Court, all of which are relied upon by the complainant, proceed upon the mistaken assumption of an analogy between the cessio bonorum or concurso de acreadores of the Louisiana law, and the Bankrupt Act of the United States, and a supposed obligation or authority to model the one upon the other. There is no such analogy and no such authority.
The Louisiana concurso requires all the creditors of the bankrupt to come in, grants an immediate cessation of all actions of every description against him, and vests in the syndic all his property without distinction, with power to sell, cancelling all mortgages and liens, and conveying an absolute and clear title to the purchaser. The rights of the several creditors are settled contradictorily, and the liens on the property sold, which have been cancelled by order of the syndic, attach upon the proceeds of the property in his hands. Elwes v. Estewan, 1 Marl., 193; Code of 1824, art. 2172; Greiner Lou. Dig., tit. Insolvency, 237; and the authorities quoted in Fisher v. Vose, 3 Rob. (La.), 475.
In the bankrupt law there is nothing of all this. The mortgage creditor is not compellable to prove his debt under the bankruptcy. He may rely upon his lien, and assert and prosecute it under the state law and process. There is no authority to stay his proceedings, unless his mortgage is fraudulent or void, or alleged to be paid off, none of which is pretended here.
If he elects to come into the bankrupt court and prove his debt, he thereby relinquishes his mortgage or other lien, and stands upon the same footing as an ordinary creditor. There is no power given by the Bankrupt Act to the court, or to the assignee, to discriminate in the distribution of the proceeds of property sold by the assignee, between creditors holding liens on it and those holding none. The only authority the assignee has, is to redeem the mortgage under the order and direction of the court, (sec. 11.) If he does not choose to redeem, he has no power to enjoin the proceedings of the mortgage creditor. That would be to impair the lien, contrary to the proviso of the 2d section.
To prevent or obstruct the recovery of debts, has been held impairing the obligation of contracts. To prevent or obstruct the assertion of a lien, and take away the existing remedy upon it, must impair the lien.
All the decisions of this court upon the former subject are authorities for us.
The dissenting opinions of Judge Bullard, in the state of Louisiana, against the sheriff of the first judicial district, and J. D. Roasenda, for a prohibition, and in the case of F. B. Conrad, assignee of Thomas Banks, for a mandamus, which are before your honors in this case, outweigh, as we humbly contend, in soundness and acuteness of argument, the contrary decisions of his brethren.—Scevola assentior.
The wide range of judicial legislation exercised by the District Court, in providing that 'the order of sale shall, ipso facto, annul the mortgages, liens, &c., existing on the property sold,' and the vast addition to, and alteration in, the bankrupt law, thus made, cannot receive the sanction of this court. What part of the act authorizes the District Court to attach liens on the proceeds of property sold, to distribute such proceeds otherwise than ratably, without discrimination, or to force into its forum a mortgage creditor who chooses to rely upon his lien, and not to prove his debt?
Whence does that court derive its power to order a state register of mortgages to cancel the inscription of such mortgages on his records? If he refuses, how is such order to be enforced? If enforced, what is its effect? The Supreme Court of Louisiana, indeed, courteously lends its aid to enforce the decrees of the District Court sitting in bankruptcy, but will the courts of other states do so? If not, is the District Court of the United States armed with authority to enforce its own mandate against a state officer, in regard to his official duty under the laws of the state, as to the registration and cancellation of mortgages? Can such a pretension be maintained in all the states? And how is uniformity in the administration of the bankrupt law to be secured, by the adoption of rules going far beyond its text, and most certainly incapable of execution in many of the states?
This branch of the subject assumes a tenfold importance when the court considers that these rules and orders, and the decrees passed under them, constitute a part of the extraordinary bankrupt jurisdiction granted to the District Court alone, under the 6th section. Such decrees, this court had decided, are without appeal. Nelson v. Carland, 1 How., 265.
While concurrent jurisdiction, therefore, is granted by the 8th section to the Circuit and District Courts, of all suits at law and in equity, which may be brought by an assignee against any one claiming an adverse interest, or by such person against the assignee, and the suit so brought may be carried, by appeal, to this tribunal, the hasty and inconsiderate orders of the District Court in bankruptcy, though they may work irreparable injury, are not subject to any supervision.
On the score of authority, it cannot be expected we should do more than produce the decisions of circuit or district judges. These questions have not yet been adjudicated in this court.
We rely on the following cases, decided by judges of this court on their circuits or by district judges, respectable for learning and ability:
The decision of Mr. Justice Baldwin in the matter of Kerlin, a bankrupt, reported in the United States Gazette, of Philadelphia, of 26th October, 1843.
The decision of Mr. Justice Story in the case of Mitchell, assignee of Roper, v. Winslow and others, in the Circuit Court of Maine, reported in the Law Reporter of Boston, for December, 1843, pp. 347 and 360.
Mr. Justice McLean's decision in the case of N. C. McLean, assignee in bankruptcy, v. The Lafayette Bank, J. S. Buckingham and others; to be found in the Western Law Journal for October, 1843, p. 15.
Mr. Justice McLean's decision in the case of N. C. McLean, assignee, v. James F. Meline. Western Law Journal for November, 1843, p. 51.
Mr. Justice Story's decision in the case of Muggridge, 5 Law Rep., 357. In Ex parte Cooke, Id., 444; Ex parte Newhall, Id., 308. In Dutton v. Freeman, Id., 452.
Mr. Justice Thompson's decision in Haughton v. Eustis, Id., 506.
Judge Prentiss's (of Vermont) opinion in Ex parte Spear, Id., 399; and Ex parte Comstock, Id., 165.
Judge Conkling's (of New York) opinion in Ex parte Allen, Id., 368.
Judge Monroe's (of Kentucky) opinion in Niles's Register, 5th November, 1842; and those of Irwin, Randall, and Gilchrist, Ibid.
These cases, it is humbly submitted, establish the doctrine for which the defendants contend, namely: that the state lien in this case was properly and rightfully enforced under the state law and process; that the rules of the District Court of Louisiana relied upon are void and without force, exceeding the jurisdiction of that court, and interpolating new principles into the Bankrupt Act; that the title acquired by Perston and Phelps, at sheriff's sale, under execution founded upon the mortgage, is good, valid against the assignee; and that the demurrer was properly sustained, and the bill rightfully dismissed.
'Proceedings in bankruptcy,' as per section 6, are of exclusive cognisance in the District Courts of the United States.
These proceedings are but acts of administration upon property and accounts, closely resembling the administration of decedents' estates in the Courts of Probate. Proceedings in bankruptcy by virtue of the provisions of this section, are not 'suits at law and equity,' which may be brought by and against the assignee, touching property or rights of property claimed to have belonged to the bankrupt, as per section 8. To entertain such suits, the Circuit and District Courts of the United States have 'concurrent jurisdiction.'
And of suits in court pending by and against a party who becomes bankrupt, such pending controversies do not abate by operation of the law upon the party's being declared bankrupt.
The jurisdiction of the state courts, as to such controversies, is not interfered with by the act of bankruptcy. The assignee becomes vested with the precise rights and condition of the bankrupt in respect to his property and controversies, which were possessed and sustained by the bankrupt on the day of his being 'decreed' a bankrupt. And the bankrupt's suits pending are to be 'prosecuted and defended (by the assignee) in the same way, and with the same effect, as they might have been by such bankrupt.' Section 3.
In this case, the judgment of Boyd against the mortgagor, the order of seizure and sale, and the levy of execution, were all before the party filed his petition in bankruptcy.
Now, by the express provision of section 3, the assignee's rights and duties in respect to this state proceeding upon the mortgage, (irrespective of its being a question of mortgage,) were neither more nor less than to present himself in the court where the case was progressing to final execution, and there make any defence Norton, the bankrupt, might have done. But it wholly subverts the provision of section 3, to indulge the assignee in disregarding such pending controversies, and then permit him to assume the attitude of plaintiff in the same case, commencing de novo in the District Court of the United States, and there to discard as coram non judice all that had been previously adjudged in the state court.
But besides that this was a case pending in a state court where the assignee should have made defence, as per section 3, as a question of mortgage, it has more distinction and immunity in the consideration of the Bankrupt Law. And in this aspect the District Court of the United States proceeding in bankruptcy has no jurisdiction of it, (unless the mortgagor had chosen to file his claim,) save and except to administer and sell the equity of redemption, or to redeem the mortgage, as per section 11.
There is no legitimate pretence this bill in chancery is a proceeding in bankruptcy. The District Court has no equity jurisdiction in this respect, but in virtue of section 8, and which confers it equally on the Circuit Court. And yet the bill seeks an administration in bankruptcy of this mortgaged property coercively against the mortgagor, within rules prescribed under the provisions of section 6. If this be so attainable, then the Circuit Court too, which has no original jurisdiction in bankruptcy, may nevertheless obtain it by bill in equity.
But all the pretensions of this bill are conceived to be unparalleled in the conflicting and imperious results it proposes.
Section 2, of the Bankrupt Act, is regarded as express authority to the assignee and the court in bankruptcy to impair, annul, and destroy this mortgage. And by the rule of court seizing upon the mortgage for administration in bankruptcy, to maintain a semblance of respect for the mandates of section 2, the provisions of section 5 are deliberately violated, which forbids any 'priority or preference' to be awarded among private creditors. It assumes the right to treat as a nullity an ordinary state adjudication of a mortgage interest, fully rendered previous to any jurisdiction having attached to the bankrupt court. In truth, the state adjudication is adjudged of as an ex post facto usurpation. The jurisdiction was well enough in the state court inceptively, and throughout its progress to the rendition of judgment. But while the execution of the state court was being consummated, the debtor filed his petition. And this, the bill assumes, ipso facto, reversed the judgment of the state court or avoided it as a nullity.
In view of a fair interpretation of the Bankrupt Act, and of the disastrous considerations presented by the bill in this case, we assure ourselves with the belief, that results so unjust, so inharmoniously absurd, will not be sustained in the reversal of this decree.
The lien of a judgment and execution attaches as to real estate upon the rendition of the judgment, as to personal property upon the seizure or levy of the execution. Code of Practice, art. 722, 723; Civil Code, art. 3289, 3290, 3291, 3292; Duffy v. Townsend, 9 Mart. (La.), 585; Bradbury and Foster v. Morgan, 2 La., 479.
Here the levy or seizure was before the date of the petition in bankruptcy, and the lien of the judgment had attached even if the property levied on had been personal, much more when it was real.
The order of seizure under a mortgage is by the law of Louisiana a judgment from which appeal lies to the Supreme Court, and on which, upon a proper case shown, injunction may issue. Gurlie v. Coquet, 3 Mart. (La.), N. S., 498; McDonough v. Zacharie, 3 La., 316; Code of Practice, tit. Injunction, art. 296, 309; Walls v. Hunter, 6 Mart. (La.), N. S., 311; Crane v. Phillips, 7 Id., 276; 8 Id., 683; 3 Id., 480; 4 Id., 499.
Mr. Chief Justice TANEY delivered the opinion of the court.
It appears in this case, that, in January, 1844, a bill was filed in the Circuit Court of the United States for the eastern district of Louisiana, sitting in chancery, by Richard Nugent, assignee of the estate of Elizabeth Norton in bankruptcy, stating, that the said Elizabeth Norton, on the 9th day of May, 1842, filed her petition in the District Court of the United States to be declared a bankrupt, and that she was accordingly decreed to be such about the 1st of June, in the same year; that she returned in her schedule two lots of ground in the city of La Fayette, particularly described in the bill; and that George William Boyd was, among others, returned as a creditor for the sum of $9000, and that notice was served on him of the proceedings in bankruptcy. The bill further states, that prior to and at the time of the petition in bankruptcy the two lots above mentioned were affected by a special mortgage to the said Boyd, which was valid by the laws of Louisiana, for the sum of $9000 and upwards; that prior to the bankruptcy of Elizabeth Norton, that is to say, about the 11th of November, 1841, Boyd commenced suit upon his said mortgage in the proper state court of Louisiana, and obtained judgment, with the privileges of a mortgage, and issued execution thereon, which was levied upon the said property about the 16th of February, 1842; and on or about the 4th of June following the property was regularly sold by the sheriff under the execution to Isaac T. Preston and Abner Phelps, who took possession of the said two lots and continue to hold them, claiming as owners. The bill further states, that the complainant, having received notice of the levy and intended sale under the execution, duly notified the said Boyd, Preston, Phelps and the sheriff in writing, before the sale, of his appointment as assignee as aforesaid, and cautioned them not to proceed with the sale; but that the parties, continuing and intending to defeat the just rights of the complainant, proceeded to sell, and placed the purchasers above mentioned in possession of the property in question. The complainant refers to and exhibits with his bill certain rules adopted by the District Court of the United States for the disposition of real estate surrendered by bankrupts, and encumbered by mortgages and charges, that by virtue of the Bankrupt Act all the proceedings in the state court ought to have been stayed, from the moment the petition of the bankrupt was filed; and that the subsequent proceedings were irregular, and conferred no title on the purchasers; and that the complainant was entitled to take the property from the hands of the sheriff, and to administer and sell the same under the direction of the District Court by virtue of the act of Congress and the rules of court above mentioned. The bill then prays process against Boyd, Preston, and Phelps, and that the proceedings under the execution subsequent to the petition in bankruptcy should be declared irregular; that the title of Preston and Phelps from the sheriff should be decreed to be null and invalid, and the said Preston and Phelps be ordered to restore the said lots to the possession of the complainant, to be administered and sold by him in conformity with the orders of the District Court of the United States, and in pursuance of the rules before referred to; and that Boyd should be directed to come into the District Court, and conform himself to the orders of the court and the rules aforesaid.
The defendants appeared, and demurred to the bill; and upon final hearing on the demurrer, the following decree was passed by the Circuit Court:——
'This is a bill in equity, presented by an assignee in bankruptcy, to set aside a certain sale, made under a writ of seizure and sale from the District Court of Louisiana, upon the ground that the District Court of the United States was, by the bankrupt law passed by Congress on the 19th of August, 1841, vested with exclusive jurisdiction over all matters appertaining to the settlement of the affairs of the bankrupt; and that, consequently, the sale made by the District Court of Louisiana has transferred no legal title to the property. The bill further claims the property sold as a part of the property of the bankrupt to be sold or otherwise disposed of under the orders of the District Court of the United States. It appears that the property in question consists of real estate, and that the same was sold to satisfy a special mortgage held by the creditor who obtained the order of seizure and sale from the state tribunal.
'I have, after an attentive consideration of the various allegations in the bill, ordered the same to be dismissed, and shall now proceed to state very briefly the grounds upon which I acted. In the first place, I do not consider that there is any equity in the bill; the property was specially mortgaged to satisfy the claim of the creditor who demanded the sale; and it does not appear that in the assertion of his right he has in any manner interfered with the rights of the other creditors of the bankrupt. It does not appear that any doubt existed as to the validity of the mortgage, or that the creditor has obtained any right or any advantage over the other creditors which the District Court, sitting in bankruptcy, would not have been bound to award him under the express provisions of the bankrupt law. It is quite clear that the liens and mortgages which are valid under the state law must be protected by the District Court of the United States, sitting in bankruptcy, and it will not be pretended that the creditor at whose instance the property in question was sold would not have been entitled, under any and all circumstances, to the proceeds of that property to satisfy the amount alleged to be due him. What benefit would then accrue to the general creditors of the bankrupt by the interference of this court in a matter which seems to have been fairly and finally adjudicated? While I am well satisfied that no good would arise from such an interference, I am equally well satisfied that great injustice would be done both to the mortgage creditor and to the estate of the bankrupt, by subjecting both unnecessarily to additional costs and expenses.
'I agree fully in the opinion, that upon the ground of expediency the jurisdiction of the District Court of the United States over all the property of the bankrupt, mortgaged or otherwise, should be exclusive; but I do not understand the bankrupt law to render it so. Where a creditor, by virtue of a special mortgage, elects to foreclose that mortgage before a state tribunal, the federal court is not called upon to interpose, except in cases where from the nature of the case wrong or injustice may be done to other creditors in interest, or where the mortgage itself may be contested.
'I wish it, however, to be distinctly understood, that I am fully of opinion that the District Court of the United States is vested with jurisdiction over mortgaged property belonging to the bankrupt, and that when a proper case is shown, it has power to foreclose a mortgage, and to do all other acts necessary to bring about a final distribution and settlement of the bankrupt estate. I am also of the opinion, that in a case where a creditor calls in question the validity of a mortgage held by another creditor, it is the duty of the said court to exercise jurisdiction over the questions involved, and, if necessary, to declare the mortgage null and void.
'In the case before me no such question is involved, and I see no reasons why the equity powers of this court should be exercised to do that which cannot change the rights of the parties interested, but which would have the effect of doing a positive injustice to the mortgage creditor, by subjecting his property to useless costs and expenses.
'It is, therefore, ordered that the complainant's bill be dismissed.'
We have inserted the whole of this decree, because we think the court were not only right in dismissing the bill, but, with a single exception, we concur also in the principles and reasoning on which the learned judge founded his decision. The exception to which we allude is that part of the decree in which he expresses his opinion, that upon the ground of expediency the jurisdiction of the District Court of the United States over all the property of the bankrupt, mortgaged or otherwise, should be exclusive, so as to take away from the state courts any jurisdiction in such cases. Upon that subject it is not our province to decide, and we have no desire to express an opinion upon it. But in every other respect the decree conforms to the opinion delivered by this court, at the present term, upon the motion for a prohibition in the case Ex parte The City Bank of New Orleans, in the matter of William Christy, assignee of Deniel T. Walden, a bankrupt, v. The City Bank of New Orleans. In that case the opinion of this court in relation to the jurisdiction of the District Court in matters of bankruptcy has been fully expressed, and need not be repeated here; and according to the principles therein stated, the decree of the Circuit Court in this case must be affirmed.
Mr. Justice CATRON.
I think the adjudication in this case is in conflict with that made in the Circuit Court at New Orleans in Christy against the City Bank; and in support of which, a majority of my brethren saw proper to express their views at a previous day during this term, in the unsuccessful application of the bank for a prohibition; but that the cases are alike—and one cannot be maintained, and the other overthrown.
In that case the petition of the assignee set forth the entire legal grounds, why the District Court should annul the judgments in the state court, and pronounce the sale void.
1. That the property sold was given in by Walden, the bankrupt, as part of his effects.
2. That the bank had notice thereof, before the sale by the sheriff.
3. That the sale was void, being contrary to the Bankrupt Law, which operated to stay all further proceeding so soon as Walden's petition was filed, and was a bar to any further prosecution of the suit until an assignee should be appointed. That the sale with notice was a fraud upon the act of Congress, and the other creditors of Walden, by reason of the law, because the bank was endeavoring to obtain an illegal preference.
4. That at the sale the property was struck off in blocks, although consisting of different buildings, at two-thirds of its value: 'All of which actings and doings are prohibited by law, and render said sale null and void.'
5. That the sale was in other respects irregular, the legal formalities not having been observed.
6. That the mortgage was void for usury, because in effecting the loan the bank gave Walden bonds on the Second Municipality instead of money, and they were then at a discount at from twenty to twenty-five per cent.
To these allegations the bank answered:——
1. By plea that the District Court was not by law empowered to decide on the matters charged.
2. That all the matters and things set forth had already been decided by a court of competent jurisdiction—referring to the adjudications by name.
3. The defendant answers, and avers, that the mortgage was legal and valid, and given upon a full and adequate consideration.
4. That the order of sale was duly granted, and the writ thereon properly issued: and that the property described in the petition was lawfully seized, and after a compliance with all the legal formalities, was sold, and adjudicated to the defendants: that the price was fully paid by giving a credit—and that the property is held under an indefeasible title.
5. All the allegations in the petition not admitted, are denied, and a trial demanded of them.
This answer was excepted to as containing no legal grounds of defence; the question was adjourned, under the 6th section of the Bankrupt Law, to the Circuit Court to be there heard and determined. It stood in that court as on bill and answer: the answer was taken of course as true in all its parts—the only question being whether any legal ground of defence was furnished by the plea, supported by an answer, denying the alleged unfairness of the sale presenting the same question in substance as did the case of Harpending v. The Dutch Church, in 16 Pet. By setting the case down on plea and answers, the proceedings in the supreme and inferior state courts were admitted of necessity to have been properly and fairly conducted; and the sale legally and fairly made. This was the undoubted aspect of the case as presented to and decided by the Circuit Court. Its decree, in the form of instructions to the bankrupt court, is, first—That the latter had full and ample powers to try all the questions presented in the assignee's petition: 2dly. That the sale made under the seizure by order of the state court was void; and that the bankrupt court should declare it so: 3d. That the bankrupt court had full power to re-try the validity of the mortgage and ascertain whether it was void for usury or otherwise: and this on the ground exclusively that the proceedings in the state courts were annulled by force of the bankrupt law, and the fact of Walden applying for its benefit.
Taking the petition and answer together, and a case existed in all its features like the present, on the title by execution; each being a fair and regular proceeding in the state court. One is suppressed—and the other maintained. And on what ground does the district judge assume to act contrary to the former adjudication? Because it was equitable and for the best interests of the estate to be distributed, in his judgment. The obvious meaning of which is, that he had power to overthrow the title or not, at his discretion; and that such discretion was the law of the case and the tenure of the title, according to the true intention of the Bankrupt Act. On this assumption are the two cases attempted to be reconciled; and on no other can they avoid direct conflict, even in appearance. In reality, the one title is as good as the other. The tendency of such a doctrine is too threatening to titles to be silently acquiesced in. Did Congress intend that the force and effect of judgments and executions in a state court, should depend on the sole discretion of a judge sitting in bankruptcy? Was it intended to discard the axiom, that unrestrained discretion in those that govern, is inconsistent with the rights of those that are governed, be they of property or person? It is very difficult to suppose so; and as difficult to accommodate the construction of the act to such a supposition. It is declared, 'that it shall not be construed to annul, destroy, or impair, any liens or mortgages, on property real or personal, which may be valid by the laws of the states respectively.'
Here two liens are combined; one by mortgage, the other by execution levied. In Christy v. The City Bank, as already stated, that by mortgage was recognized as a right protected by the act, but to be administered in the bankrupt court only; that by execution was pronounced void. This decision the court below was asked to follow out, in the case before us, and refused.
By the execution levied, the lien 'was valid by the laws of the state'—in the words of the saving clause; the remedy by seizure created the right; to annul, or to stay the execution, impaired a right, excepted out of the act. Since the opinions were delivered in the ex parte application of the City Bank, we have in effect so held at the present term, in Waller v. Best.2
In making exceptions in favor of liens created by judgment and execution, Congress was governed by practical considerations. The states usually were large, the bankrupt courts in many of them far off from the creditors, the debts owing by the bankrupt small in amount to a great extent; for these recoveries would be had in the inferior courts and before magistrates; the property would be seized by execution, and he the debtor be driven into bankruptcy; this step might be taken secretly. The officer having possession of the property had to dispose of it according to the commands of the writ, and make return to the state tribunal; a return that the debtor had applied for the benefit of the bankrupt law would not be a legal return, as I have held, and always supposed; and that a decree declaring the party a bankrupt, would not alter the case; as in either, the lien would be not only impaired, but destroyed where the levy alone gave it, as is the case in many instances. To drive the small creditor into the bankrupt court to establish his demand and effectuate his lien, would often have been worth more in trouble and expense than the debt, and in the mean time the property, being abandoned by the officer, and not taken possession of by the assignee, would in many instances perish. These facts were too palpable for Congress to overlook. To protect such liens, I take it the exception was a compromise between the opponents and friends of the bill; the one side supporting rights secured by the state laws, and the other seeking to adopt a different rule under the Constitution of the United States, in regard to the relation of debtor and creditor.
In many cases the bankrupt might owe debts in other states than that where he would be declared bankrupt; then other difficulties would arise on executions being levied in the foreign jurisdiction, to which the powers of the bankrupt court could not extend. In all the cases enumerated the assignee had given to him the same powers the bankrupt previously had, to sue and defend, and no material difficulty could arise (or has arisen) in adjusting the claims in the state courts, to which the assignee was bound to apply.
That a mortgage can be foreclosed in the bankrupt court, and the lien given by it be preserved there, I have never doubted, if the jurisdiction of a state court had not attached, and was not ousted by the proceedings in bankruptcy.
For the foregoing reasons, I think the court of Louisiana was mistaken when it assumed to have power to suppress the sale made by the sheriff, or to let it stand, at its discretion.
The decree is deemed entirely proper; nor would the reasons for it have been noticed had not my brethren adopted them to the extent above; and with which adoption I cannot concur.
Ante., p. 111.