Sidebilder
PDF
ePub

through the tribunals of justice, commands to be done, ought to be considered and taken as done. But to remove all scruples and quiet all apprehensions, on the 24th of February, 1843, the court passed an order, at the instance of the assignee, stating that, in pursuance of its order, a sale had taken place, for which sale the New Orleans Banking and Canal Company, which held the first and oldest mortgage on Banks's Arcade, had given to the assignee its written consent that its mortgage should be raised, in order that the assignee might pass clear titles to the purchasers; and ordering that the recorder of mortgages should erase from his records the mortgages of the defendant and others. On the 6th of March, 1843, the assignee presented his petition to the Parish Court for the parish of New Orleans, reciting the proceedings in the District Court, and the refusal of the recorder of mortgages to comply with the order to erase the mortgages; and concluding by praying the court for a mandamus to compel the register to cancel the mortgages in conformity with the order of the District Court. The case was elaborately argued for three days, in the Parish Court, which finally ordered the mandamus to be granted. The recorder ap496*] pealed *from this decision to the Supreme Court of Louisiana; and that court affirmed it. See 5 Robinson's Reports of cases in the Supreme Court of Louisiana, 49. Thereupon the recorder erased the mortgages, gave a certificate that no incumbrances existed on the property, and the assignee passed a clear title to the plaintiffs, and received the price from them at which the property had been stricken off, in money and notes, according to the terms of sale.

On the 23d of June, 1843, the New Orleans Canal and Banking Company presented a petition to the District Court, stating the sale of Banks' Arcade, and praying that, as the first mortgagee, the assignee be ordered to pay over to the petitioner the cash proceeds and the notes of the purchasers. The court ordered public notice to be given of this petition, which having been accordingly given, on the 6th of July, 1843, the day fixed for its being heard, the court gave judgment that the assignee pay over to the Canal Bank, holding the oldest mortgage, the proceeds of the sale of Banks' Arcade. The aggregate amount fell far short of what was due to the bank.

On the 5th of January, 1844, the assignee having filed his account of his administration of the bankrupt's estate, so far as he had been able to make progress in it, his account was referred by the court to commissioners, for examination and report. The commissioners proceeded to the adjustment of the assignee's accounts, awarded or adjudged the proceeds of the sale of Banks' Arcade to the New Orleans Canal and Banking Company, as the first mortgage creditor on the property, and reported to the court.

Upon receiving their report, the hearing on it was fixed for the 18th of April, 1844, and notice was ordered to be given through the public papers, and personally, to the resident creditors of the bankrupt, to show cause why the report should not be homologated by the court. Among the creditors personally notified was the City Bank of New Orleans, the present

[ocr errors]

defendant. On the day fixed, the report of the commissioners was homologated by the court.

Throughout the whole proceedings of the District Court, in the case of Thomas Banks' bankruptcy, that court appears to have acted with the greatest caution, and with the most conscientious regard to the rights of mortgagees and all creditors. In the commencement of Banks' action or suit against his creditors, to obtain his discharge, under the Bankrupt Act of Congress, they were notified by publication in the newspapers, and personally, as required by the act. On the occasion of every important step taken during the progress of the case, the creditors were fully notified, either personally or by publication *in the newspapers, [*497 or in both forms, of what was proposed to be done. Thus, when the assignee proposed to have the property subdivided, and, as the leases upon it were about expiring, asked for authority to grant new leases, the court fixed a time for hearing his motion, and ordered public notice thereof to be given in the newspapers. So, when the assignee applied for an order of sale, accompanying his petition with a schedule of the property to be sold, and stating the proposed terms of sale, the court fixed a time for hearing the motion, and ordered that public notice thereof be given in the newspapers, and personally served on the mortgage creditors. So, also, when the New Orleans Canal and Banking Company, after the sale of Banks' Arcade, petitioned the court, as the oldest mortgagee, to have the proceeds of the sale applied towards payment of its mortgage, a day was fixed for the trial of this petition and the court ordered public notice to be given in the newspapers. And again, after the report was made of the commissioners appointed to settle the assignee's account of the administration of the bankrupt's estate, by which report the proceeds of Banks' Arcade were awarded to the first mortgagee, as they had been previously by the judgment of the court, notice was given to all creditors, through the public papers, and served personally on the defendant, to appear and show cause why the report should not be homologated by the court.

But if the District Court were signally assiduous and untiring in inviting by repeated notifications, all persons, and the City Bank especially, to come forward and assert their rights, and oppose whatever might unjustly tend to their prejudice, that corporation appears to have firmly resolved to disregard all its friendly summonses. It maintained throughout an obstinate, if not sullen silence. It determined upon a deliberate, if not masterly, inactivity. It never once, on any occasion, appeared in the District Court sitting in the bankruptcy of Thomas Banks. It did not object to, or contest, the sale of the Arcade, when about to be ordered. It did not forbid the sale, when about to be made. It did not oppose the appropriation of the proceeds of sale towards the payment of the first and prior mortgage. When the report of the commissioners, appointed to settle the accounts of the assignee, was about to be homologated by the court, the defendant did not oppose the slightest obstacle, although that report expressly assigned the proceeds of the Arcade away from his mortgage

towards the satisfaction of the eldest mortgage. He made no opposition, which is known, to the erasure of his mortgage, either before the Parish Court of New Orleans, or before the Supreme Court of Louisiana. If the defendant 498*] entertained any antipathy to *the federal tribunal, the State courts remained open to him; but neither there did he make his appearance, whilst any of the transactions which he now seeks to annul and set aside were in progress. He did not before any State court institute an hypothecary action, or apply for any order of seizure and sale to subject the Arcade to the payment of his mortgage. He applied for no injunction to restrain the proceedings before the District Court, nor to prevent the Parish Court from erasing his mortgage. The defendant was as silent as the grave until after the whole proceedings about the Arcade were closed in the Bankrupt Court, until after the plaintiffs had bought the property, without warning, paid the purchase money, received a clear title, and taken a peaceable and quiet, and, as they had every right to suppose, an undisturbable possession, of what they had fairly bought and honestly paid for.

In this stage of the business, when all seemed perfectly settled, and when, according to the ordinary course of human affairs, and the wants of quiet and repose in society, there should be a termination of all controversy, the City Bank of New Orleans for the first time puts itself in motion, and, seeking to disregard, disturb, and set aside all that had been previously done in respect to the Arcade, commences in the Commercial Court of New Orleans its hypothecary action against the plaintiffs in this writ of error, as third parties in possession of the mortgaged property. It does not make defendants to the suit, either the New Orleans Canal and Banking Company, or the Carrollton Railroad Company, both of which, as has been before stated, held mortgages prior in time and dignity to that of the City Bank of New Orleans. It charges no irregularity, imputes no fraud, and does not impeach the fairness of the sale. It is founded exclusively upon the notion that the highest judicial tribunals of the State and Union had perseveringly and deliberately misinterpreted the Bankrupt Act; and that, although that act is now dead, and years have elapsed and millions of property have changed hands under faith of the interpretation given to it, it is not now too late to go back and correct the error into which those tribunals have fallen. The court dismissed the action of the City Bank, and it appealed to the Supreme Court of Louisiana. That court, reversing the decision of the inferior tribunal, gave judgment for the City Bank, to reverse which this writ of error is now prosecuted.

I. The first ground on which the plaintiffs rely is, that the first mortgagee, being an acknowledged party to the cause, gave his previous consent and authority to the sale, and, after it was made, petitioned the court to receive the 499*] proceeds, and actually did receive them, towards the satisfaction of his mortgage, and so ratified and confirmed the previous sale. [As the decision of the court did not turn upon this point, the argument is omitted.]

[ocr errors]

II. But it is contended that, without any assent of the first mortgagee to the proceedings

[ocr errors]

of the court in bankruptcy, and even in opposition to the protest of that and every other incumbrancer, that court, under the act of Congress, had full and complete jurisdiction over the mortgaged property, had ample power to order its sale, and that the sale, in virtue of its authority, is valid, and binding upon all parties whatever.

Nothing, it would seem, on principle, would be more proper and fitting, than that the assignee of the bankrupt should be invested with all the property, however encumbered, rights, and interests of the bankrupt; that he should have power to sell and dispose of it to the best advantage, making clear titles to the purchasers; and that he should be obliged, at the same time, to show proper regard and pay due respect to all liens and incumbrances existing on the property. In no other way can a unity in the administration of the bankrupt's estate be secured. In no other way can a speedy and definitive settlement of it be effected. If a part of his estate, the unencumbered part only, be subject to the authority of the assignee, and the residue of it, the encumbered part, be beyond his control, and liable to a different and conflicting administration, delay and confusion are inevitable.

What was so manifest and reasonable in itself was not likely to be overlooked by the wisdom of Congress. Accordingly, in the Bankrupt Act the assignee is invested with the fullest right and power over the whole estate, rights and interests of the bankrupt, of whatever kind or nature, to the same extent in which the bankrupt himself held them. (Third section of the act.) And Congress, looking to the interest of all parties to have a speedy settlement of the bankrupt's estate, has provided (in the tenth section of the act), that it shall, if practicable, be accomplished within two years after the decree in bankruptcy.

By the second section of the act, it is provided, that nothing in the act contained shall be construed to annul, destroy, or impair any lawful rights of married women or minors, or any liens, mortgages, or other securities on property, real or personal, which may be valid by the laws of the States respectively, and which are not inconsistent with the provisions of the second and fifth sections of the act.

Under this proviso the defendant contends, that as mortgagee, he is exempted from the operation of the Bankrupt *Act; that it [*500 does not touch or affect him; that the property which is mortgaged to him is beyond the reach or control of the Bankrupt Court, and that he may proceed when he pleases to enforce his mortgage rights, without regard to the interests of the other creditors of the bankrupt, and without respect to the requirement of the Bankrupt Act to insure a speedy settlement and close of the proceedings in each case in bankruptcy, within two years, if practicable, after the decree delaring the bankruptcy.

These are high pretensions, and ought to be fully and justly weighed. Undoubtedly, the rights of all mortgagees, in a due execution of the Bankrupt Act, art to be fully respected and enforced, and are not to be annulled, destroyed, or impaired. But, whilst the most liberal and full effect ought to be given to the part of the act which declares that they shall not be im

If the act can receive a construction by which the mortgage creditor can be made safe in the receipt of the debt which the mortgage was intended to secure, and other creditors can be allowed to receive what remains of the mortgaged property, after that object is accomplished, that construction would be recommended by justice and equity.

The plaintiffs contend, that the mortgaged property should be fairly administered by the assignee, along with the other property of the bankrupt; that it should be fairly sold, in a manner likely to make it the most productivė; and that out of the proceeds the mortgages should be first satisfied, and the residue, if any, be applied to the payment of the general creditors. And this, they contend, is necessary to comply with the provisions of the Bankrupt Act. Far from annulling, destroying, or impairing the lien, they contend that this course gives to it full and complete effect, securing the identical object for which the mortgage or

[ocr errors]

paired, annulled, or destroyed, full operation | securities on property, real or personal," are should also be allowed to all other parts of the equally entitled to the protection claimed under act. the proviso of the second section of the Bankrupt Act. How would it be possible to make any rational sale of the estate of the bankrupt, subject to these unascertained incumbrances? Neither the seller could possibly know the actual value of what he was selling, nor the purchaser what he was buying. Both would be acting perfectly in the dark. Between the two modes of selling the encumbered property that of selling it although shingled over with unknown liens, ΟΙ liens of unascertained amount or validity, subject to the whole of them, or that of fairly selling it upon ample notice, liberated from all incumbrances, good and bad, and applying the proceeds first to the satisfaction of all "lawful rights of married women or minors or any liens, mortgages, or other securities," and the surplus, if any, to other creditors-there cannot for a moment be a doubt which is fraught with the most equity, justice, and propriety. The error of the argument of the defendant, in opposition to the latter mode of sale, consists in considering it as annulling, destroying, or impairing the lien. So far from its having that effect, the precise object for which it was created is accomplished by applying the proceeds of the mortgaged property to the satisfaction of the lien. It no more annuls, destroys, or impairs the lien, than would be done by a *judicial sale (*502 of the property under a judgment or the decree of a State tribunal. A mortgage cannot be justly or truly said to be impaired or annulled when it has been fully satisfied or satisfied to the extent of all the proceeds of the property mortgaged.

lien was created.

But the defendant, in effect, contends that the whole property of the bankrupt, as was manifestly intended by the Bankrupt Act, is not vested in the assignee; that a part of that property, which happens to be mortgaged, is without the power or control of his assignee; that it can only be acted upon and disposed of when the mortgagee pleases; and, consequently, whatever may be its value or amount, whether it exceeds or not the debt which it was intended to secure, it must remain exempt from the power or management of the assignee.

This is not believed to be according to the design of the Bankrupt Act. That was to subject the whole property of the bankrupt to the payment of all his debts, according to their 501*] *priority and privileges. And this design can be best effectuated by subjecting the property to a single and undivided mangement, under the superintendence of the assignee, acting in obedience to one judicial tribunal. If the contrary be supposed-if the mere fact of the existence of a mortgage withdraws the mortgaged property from the control of an assignee what might be the consequence? The mortgage may be illegal and invalid, or may be upon property amounting to a value greatly exceeding the debt intended to be secured by it. Is the property mortgaged under such circumstances to remain beyond the reach of the assignee? Does not every view which can be taken of the subject lead to the conclusion that the entire property of a bankrupt, encumbered and unencumbered, should be under the control of the assignee, so as to be administered by him, with due respect to liens or not, as they may happen to exist?

It is further urged by the defendant, that, whilst his mortgage is to remain sacred and beyond the reach of the assignee, the equity of redemption may be sold; in other words, that the mortgage property must be sold, subject to the incumbrance. If the existence of a mortgage protects the property against the operation of the Bankrupt Act, all "lawful rights of married women or minors, or any liens or other

If it had been the intention of Congress to do anything more, in regard to mortgages and other liens, than to preserve them unimpairedif it had been intended to exclude them altogether from the operation of the Bankrupt Act -different language from that which was actually used would have been employed. Thus in the third, the next section of the act to that which has been under consideration, the language of the proviso is, "that there shall be excepted from the operation of the provisions of this section the necessary household and kitchen furniture," etc. clearly manifesting, that, with that exception, it was the purpose of Congress to vest in the assignee the whole estate of the bankrupt, of every name and nature, encumbered or unencumbered, to be administered by him with due regard to the rights and privileges of all persons.

But it is useless to prolong the argument in support of the interpretation of the bankrupt law now contended for. Any necessity for it is wholly superseded by authoritative decisions of the highest tribunals, federal and State. The jurisdiction of the United States District Court, sitting in bankruptcy, over the property mortgaged by the bankrupt, is supported and maintained by this court in the case Ex-parte The City Bank of New Orleans (the same bank which is defendant in this case) against Christy, Assignee, 3 Howard's Reports, 292. Nothing can be more full, clear, and satisfactory, than the reasoning employed by this court in that case, and the conclusion at which it ar

rives. It was objected against it, in the court below, that the decision was extrajudicial; that it was not necessary to determine the point as to the jurisdiction over mortgages; and that the cause went off by a refusal to grant the prohibition moved for. It is true, that, if the Supreme Court had chosen to shrink from any expression upon that point of its opinion, and to stand non-committal, it might have limited itself to a simple denial of the prohibition. But it is respectfully conceived, that such a course of darkness would not have well corresponded with the duty and dignity of that high tribunal. The point fairly arose in the cause, was elaborately discussed in the argument, and was deliberately considered by the court. It arose under a new law, just going into full operation throughout the whole extent of the United States, and subject to exposition by a great variety of tribunals, federal and State. Conflicting, or apparently conflicting, decisions 503*] were made, or in danger of *being made, by inferior courts. All eyes were anxiously turned to this court for light. The very party now objecting to the authority of the precedent brought the point before the court, and fully, ably, and confidently argued it. Under all these circumstances, and considering the great necessity for uniformity of practice and decision under this new law, could this court have justly and honorably avoided settling definitively the controverted point? The court thought it could not. The decision of such a question, which was attended with so much solemnity and consideration, cannot be regarded as obiter dicta, or loose expressions of judges, which accidentally fall from them, without deliberation, during the progress of a trial.

But, to put the matter forever at rest, this court subsequently re-affirmed all the doctrines and principles laid down previously in the preceding case, in Norton's Assignee v. Boyd et al. 3 Howard, 434.

I will not go into an examination of the decisions of particular judges of the federal courts, acting on the circuits or in the districts; for if they conflict with those already referred to, they must yield to the paramount authority of this court.

If this decision of the question, by the highest tribunal in the land, stood upon its own exalted authority and dignity alone, it ought to command the respect and obedience of all other tribunals, State and federal, within the United States. For if the Supreme Court of the United States cannot finally and definitively settle a controverted interpretation of a law of the United States, our admirable but complicated system of free government would be thrown, as to the administration of justice, into utter and hopeless disorder and confusion. But it does not rest upon the sole authority of this court. The Supreme Court of Louisiana, by repeated decisions, fully and deliberately considered, had decided the same question in the same way. Conrad, Assignee, etc. v. Prieur, Recorder, etc. 5 Robinson, 49; Clarke, Assignee, v. Rosenda et al. 5 Robinson, 27; Benjamin, Assignee, v. Prieur, 5 Robinson, 59; Lewis v. Fisk et al., 6 Robinson, 159.

It will be perceived, on an examination of these cases, that they cover the whole ground of the question of the jurisdiction of the Bankrupt Court; and that it was thoroughly considered and most ably argued. The Supreme Court of Louisiana declares, that, however the question may be settled in other States, the maintenance of the jurisdiction of the Bankrupt Court is essential to the purposes of justice in Louisiana; and that, if it be not maintained, "it would be destructive of most of the liens and securities intended to be protected by the last proviso of the second section of the act of Congress," owing to the peculiar na- [*504 ture of the liens and mortgages as constituted by the laws of Louisiana.

Thus doubly fortified by the solemn and deliberate decisions of the highest judicial tribunal in the United States, and the highest judicial tribunal of the State of Louisiana, the plaintiffs had some right to suppose that they could not be disturbed in the possession of property fairly purchased, and held by them under the sanction of these high authorities.

[Mr. Clay then replied to Mr. Sergeant's argument respecting the irregularity of the proceedings.]

III. That the cancelment and erasure of the defendant's mortgage create an absolute bar to any relief to which he now seeks to subject the mortgage in the hands of third parties to his demand.

IV. That the defendant, by his culpable silence and non-intervention, during the whole proceedings, from beginning to end, and terminating in the consummation of the sale of the mortgaged property by the passing of titles, has deprived himself of all right to the aid and assistance of a court of justice to enforce his present claim.

[As the decision of the court did not turn upon either of these points, the argument is omitted.]

Mr. Chief Justice Taney delivered the opinion of the court:

This case is brought here by a writ of error directed to the Supreme Court of the State of Louisiana, under the twenty-fifth section of the Act of 1789. The record is voluminous, and necessarily so from the nature of the controversy in the State courts. But the following summary statement contains all the facts material to the question now before this court upon the writ of error:

In 1842, Thomas Banks, a citizen of New Orleans, was declared a bankrupt under the act of Congress to establish an uniform system of bankruptcy, and F. B. Conrad appointed his assignee. At the time of his bankruptcy he was the owner of certain real property in New Orleans, called Banks' Arcade, upon which he had executed three several mortgages, all of them outstanding and unsatisfied at the time he became a bankrupt. The first was to the New Orleans Canal and Banking Company; the second to the Carrollton Railroad Company; and the third to the City Bank of New Orleans.

Upon the application of the assignec, the District Court of the United States ordered those mortgaged premises to be sold, and directed that the mortgages should be cancelled, and the property sold free from incumbrance, rendering to the parties interested their respective priorities in the proceeds. It 505*] *was accordingly sold, and purchased by the appellants; and they having complied with the terms of sale, conveyances have been made to them by the assignee, and possession delivered.

Before the money was paid by the purchasers, there were some proceedings in the State courts in order to obtain the actual cancellation of these mortgages in the office in which they were recorded. But these proceedings are not material to the question before this court, and it is unnecessary to state them.

After the sale was made and reported by the assignee, the New Orleans Canal and Banking Company, which held the elder mortgage, filed a petition in the District Court, praying that the proceeds of the sale might be paid over to that bank; the whole amount for which the property was sold being insufficient to satisfy the debt due on that mortgage. The said bank had, it appears, before this application was made, consented to the sale by the assignee, and agreed that the mortgages in its favor should be cancelled for the purpose of giving titles to the purchasers, reserving its rights to be paid first out of the proceeds.

But neither the Carrollton Railroad Company nor the City Bank of New Orleans appeared in the District Court in any of the proceedings hereinbefore mentioned, although regularly notified. Nor did either of them exhibit or prove any claim against the bankrupt's estate, nor assent or object to the sale, or to any of the proceedings therein.

Subsequently, however, and after the proceedings upon this subject in the District Court had been completed, and the purchasers had complied with the terms of sale, and received their titles from the assignee, and been placed in possession of the premises, the City Bank of New Orleans, which held the third mortgage, instituted a suit in the Commercial Court of the State, for the purpose of charging the property in the hands of the purchasers with the money due on its mortgage. The purchasers resisted the claim, upon the ground that they were entitled to hold the property free and discharged from this encumbrance, under the sale made to them by the assignee, as hereinbefore stated. And the Commercial Court having decided in favor of the validity of this defense, the bank appealed to the Supreme Court of the State, where the question was raised and argued, whether, under the act of Congress establishing a uniform system of bankruptcy, the purchasers were entitled to hold the premises free and discharged from the mortgage to the City Bank.

Upon this question the Supreme Court re506*] versed the judgment of the Commercial Court, and adjudged that the property should be seized by the sheriff, and sold to satisfy the demand of the bank. And it is this judgment of the Supreme Court of Louisiana that is now before this court for revision.

The record manifestly presents a case within the twenty-fifth section of the Act of Congress of 1789, and the jurisdiction of this court has not been disputed. The authority of the District Court of the United States to order the sale of the property free from and discharged of the incumbrances, as mentioned in the proceedings, was drawn in question, and the decision of the Supreme Court of the State was against the validity of the authority thus exercised by the District Court. And this is the only question upon which this court is authorized to pass judgment; for the same section of the Act of 1789, which gives jurisdiction in the cases therein enumerated, forbids it to be exercised over any other question which may have arisen in the case, or been decided by the State court.

The question, then, to be decided by this court is simply this: Are the purchasers under the sale made by the assignee of Thomas Banks, as hereinbefore stated, under the authority of the District Court, entitled to hold the property free and discharged from the mortgage and incumbrance of the City Bank? With every respect for the learned State court which has decided against the right of the purchasers, we cannot persuade ourselves that it can be either necessary or proper, at this day, for this court, in deciding a case like this, to enter into an argument upon the construction of the bankrupt law, in order to vindicate its judgment. The power of the District Court over mortgages, in cases of bankruptcy, was fully argued and considered in the two cases reported in 3 Howard, 292 and 426, as appears by the opinions delivered by the court, and the opinions of the justices who dissented. But whatever difference of opinion existed as to some of the propositions maintained in these cases by the majority of the court, there has been no division of opinion upon a question like the one presented in this record. And the court are unanimously of opinion that the sale made by the assignee of the property in question is valid, and that the purchasers are entitled to hold it free and discharged from the mortgage to the City Bank, and from all other incumbrances mentioned in the proceedings.

The judgment of the Supreme Court of Louisiana must therefore be reversed.

Order.

This cause came on to be heard on the tran

script of the *record from the Supreme [*507 Court of the State of Louisiana, and was argued by counsel; on consideration whereof, it is now here ordered and adjudged by this court, that the judgment of the said Supreme Court in this cause be, and the same is hereby reversed, with costs; and that this cause be, and the same is hereby remanded to the said Supreme Court, to be proceeded with in conformity to the opinion of this court, and as to law and justice shall appertain.

« ForrigeFortsett »