Court Opinion

ID: 7207774
Source: CourtListenerOpinion
Date Created: 2022-07-24 17:17:22.481085+00
Date Added: 2024-06-11T16:16:43.898893
License: Public Domain

Bullard, J.
dissenting. The facts which this case discloses appear to be, that Rosenda had a special conventional mortgage on certain lots, in the city of New Orleans, belonging to Zabriskie ; that, before the application of the latter to be declared a bankrupt in the District Court of the United States, Rosenda had sued out of the State court, an order of seizure and sale; that after the appointment of the assignee, he was made a party to the proceeding; that the petitioner, Clarke, was appointed assignee, on the 7th of November, 1842, and that he applied to the District Court of the United States, sitting in bankruptcy, and obtained an injunction staying the proceedings of the mortgage creditor, and of the Sheriff, under the order of the State Court; that afterwards, Rosenda took a rule on the assignee in the State court which had issued the order of seizure, to show cause, why the Sheriff of the District Court of the State, should not proceed to sell the property under seizure, according to the order of the court; and that the rule was made absolute, and the Sheriff advertised the lots for sale, when the assignee obtained from this court a prohibition nisi.
The answer maintains the jurisdiction of the District Court of the State, and thus presents the question growing out of the late act of Congress, establishing a uniform system of bankruptcy, whether a mortgage creditor of a bankrupt can abstain from claiming under the bankruptcy, and proceed at law, contradictorily with the assignee, to have the mortgaged premises sold to satisfy his debt; or whether he be bound to make himself a party to the proceedings in bankruptcy, and come in for his dividend under the act of Congress, and according to the rules established by the bankrupt court. The assignee asserts the exclusive jurisdiction of the bankrupt court, over all the property given up by the bankrupt, and vested in the assignee, and the incapacity of any of the creditors to proceed in any other tribunal, whether in personam or in rem, and that the decree of bankruptcy operates as a stay of all proceedings. On the other hand, it is contended by the mortgage creditor, that he has never made himself a party .to the proceedings in bankruptcy, has never proved his debt, and *40claimed to be paid by the assignee ; but that his right as a mortgagee, is expressly protected by the act of Congress, and that he has a right to proceed and foreclose his mortgage in the State court, upon making the assignee a party to the proceedings.
My opinion is, that the mortgagee is not compelled to go in and claim his debt under the bankruptcy ; that he may proceed wholly independently of the bankruptcy upon making the assignee, however, a party; and that the assignee takes no greater right in the mortgaged premises, that the bankrupt himself had ; that is to say, a residuum after paying the debt secured by mortgage coupled with the possession. He takes the property cum. onere, and the mortgage is saved by the act of Congress. It is a general principle, if I mistake not, that all assignees, whether conventional or legal, take the property assigned, .subject to all the equities to which it was subject in the hands of the assignor. The property passes in the same condition and plight as it was possessed by the bankrupt, in cases of legal assignment by bankruptcy. 2 Story’s Equity, § 1411. 9 Vesey, 100.
The various provisions of the late act of Congress, establishing a uniform system of bankruptcy in the United States, satisfy me that Congress never intended to make an exception to this general rule. But, before I proceed to examine and compare the different provisions of the act, I will premise, that Congress could not, under the constitution, establish any other than a uniform system of bankruptcy. It could not have been the intention of Congress to create, in the other States, a system analogous to the common law system of bankruptcy, and in Louisiana, the cessio bonorum, or concurso de acreedores, as known to our local jurisprudence, and derived from that of Spain, in which all the property of the ceding debtor is administered by a syndic, appointed hy the creditors, as their common mandatary ; in which all the creditors, whatever may be the nature of their debts, become parties, and are at the same time both plaintiffs and defendants; in which all suits against the debtor, are- cumulated before the same tribunal, and the syndic proceeds to reduce the property, the common pledge of all the creditors, to cash, by selling it free from all incumbrances, on terms dictated by the creditors, and then distributes the proceeds among all, according to their respective *41ranks as creditors, whether by mortgage, special or general, or by privilege, or lien, in conformity to that complex scale existing in our code, so well calculated to entangle unwary creditors, whose honest debts are often swallowed up, and lost, amidst the hidden reclamations, of wives, minors, pupils, law charges, &c., &c.; a system utterly unsuited to a commercial country, and so different from that prevailing in the other States of the Union, that a final tableau of distribution, with all its mortgages, general, special, legal or judicial, its privileges upon moveables or immoveables, either general or restricted, its law charges, fees of attorneys, of syndics, and fees of attorneys of absent creditors, and all those other devices by which all estates, whether of the living or of the dead, are deciminated, would be unintelligible out of this State.
But let us examine now, in detail, the provisions of the act of Congress. In the first place, the third section, which provides for the appointment of an assignee, and defines his powers and duties, declares, that the property vests in him ipso facto, “ and that the assignee shall be vested with all the rights, titles, powers, and authorities to sell, manage, and dispose of the same, and to sue for and defend the same, subject to the orders and directions of the court as fully, to all intents and purposes, as if the same were vested in, or might be exercised by such bankrupt before, or at the time of his bankruptcy, declared as aforesaid ; and all suits in law anil in equity then pending, in which said bankrupt is a party, may be prosecuted and defended by such assignee to their final conclusion, in the same way, and with the same effect, as they might have been by the bankrupt.” This section shows the extent of title vested in the assignee. He takes the place of the assignor. It shows also that all actions against the assignee are not necessarily cumulated before the same jurisdiction; that actions already pending, may be carried on to final judgment, contradictorily with the assignee, wholly independent of the bankrupt court.
The fifth section declares the manner in which the creditors of the bankrupt shall be paid. It provides that all creditors coming in, and proving their debts under the bankruptcy, shall be entitled to share in the bankrupt’s property and effects pro rata, without any priority or preference whatever, except only for debts due by *42such bankrupt to the United States, and for all debts due by him to persons who, by the laws of the United States have a preference, in consequence of having paid moneys as his sureties, which shall be first paid out of the assets, and next, certain operatives, to an amount not exceeding twenty-five dollars each. It will be remarked, that no provision is make for paying mortgage or privileged debts according to their rank. All who prove their debts in the bankrupt court, must share alike, with the three enumerated exceptions. Can we create another exception ? Can we say that the mortgagee is compelled to come in, and that he may be preferred in the distribution of the assets to ordinary creditors ? It is said, that the proviso to the second section qualifies this provision. The proviso in question, is in the following words : “ That nothing in this 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 this act.”
Taking the words in this proviso in their ordinary sense, I should suppose the Legislature intended, that, notwithstanding the bankruptcy, and the vesting in the assignee of all the property of the bankrupt, yet all mortgages, privileges, and liens, previously existing, should remain unimpaired. Such, indeed, are the very words of the section — those mortgages or liens shall not be annulled, destroyed, or impaired. Can the right of the mortgagee be said to be unimpaired, when, in spite of his opposition, the assignee assumes to sell the property free from all incumbrances ; to give a clear title to the purchaser ; to obtain the erasure of the mortgage from the Recorder; and turns the mortgagee over to his remedy against the assignee, for such portion of the debt due him as may not be absorbed in expenses of administration — to transform the claim of the mortgagee from the thing to its price, secured by a right of action upon the bond of the assignee 1 And what is this right of the mortgagee ? It is a jus in re — it gives the mortgagee a right to pursue the thing into whosoever hands it may pass. While it is admitted on all hands, that under the English bankrupt system the mortgagee may stand out, and retain *43his title in, or to the mortgaged premises, it is said, that a mortgage at common law is quite a different thing from a Louisiana mortgage ; that by our law the mortgage is merely a security for the payment of money, whereas at common law, the legal title is in the mortgagee. In both systems the mortgagor retains possession — in both the mortgagee acquires a jus in re ; and what is that but an estate, a legal title, not to the thing, but in it. The difference is merely technical; and Lord Mansfield never said a truer thing, in my opinion, than when he declared, that a mortgagee, notwithstanding the form, has but a chattel, and that a mortgage is only a security, and that it is an affront to common sense to say that the mortgagor is not the real owner. Doug. 610. 11 Johnson, 536.
It is further said, that the rights of mortgagees are secured in the same way as they are by the local law of the different States ; and h*ence it is inferred, that as the syndic, under our State system of cessio bonorum, would have a right to sell the mortgaged property, and distribute the price according to the rank of the creditors; the assignee under the bankrupt law may do the same thing; and this is what they call a saving, from being annulled, destroyed, or impaired,, of the rights of mortgagees. This construction would be much more plausible, if the act of Congress made provision for any other than a pro rata distribution of the assets. I infer, on the other hand, that nothing goes to the assignee for distribution among the creditors who prove their debts, but the residuum after paying off the incumbrances ; and this consideration is fortified by another provision of the act, (sec. 11,) by which- the assignee is authorized, by and under the order and direction of the proper court in bankruptcy, to redeem and discharge any mortgage or other pledge, or deposite, or lien upon any property, real or personal, whether payable in prcesenti or at a future day, and to tender a due performance of the condition thereof. If it had been the intention of Congress, that the assignee should in all cases sell the mortgaged premises and distribute the proceeds as pretended in this case, why authorize him to pay off the incumbrance and redeem the property ? How can the two be reconciled ? The one implies that the mortgagor may stand aloof and require the payment of his hypothecary debt'by the as*44signee ; the other that he is compelled to come in and prove his debt, and contribute, of course, his share to all the charges of the administration. An authority in the assignee to redeem implies a corelative right in the mortgagee to retain until the debt is satisfied. I cannot bring my mind to any other conclusion, than, that the assignee may either sell the equity of redemption, or the property subject to the mortgage, or that he may, if he thinks proper, redeem the property by paying off the incumbrance, and distribute the residuum among the creditors who prove their debts. The same end is thus attained without impairing the right of the mortgagee, and without imposing upon him any share of the charges of administration. It is true, the matter is not free from difficulty when there are general mortgages, either legal or judicial; which operate on all the real estate and slaves of the bankrupt ; but the Code of Practice seems to me, to have made sufficient provisions for a concurso in such cases. *
There is yet another provision of the act of Congress to be considered in this connection. I mean that part of the fifth section which declares, that no “ creditor or other person, coming in and proving his debt, or other claim, shall be allowed to maintain any suit at law or in equity therefor, but shall be deemed thereby to have waived all right of action and suit against such bankrupt, and all proceedings already commenced, and all unsatisfied judgments already obtained thereon, shall be deemed to be surrendered thereby.” Now let me suppose the case of a judicial mortgage, which is one resulting from an unsatisfied judgment recorded. Can the holder of such a claim prove his debt under the bankruptcy, without being deemed to have waived his judgment, and consequently his mortgage ? I think not.
But if the act declares, that those who prove their debts under the bankruptcy, shall not maintain any action or enforce any previous judgment, does it not follow, by direct implication, that those who stand aloof, and have unsatisfied judgments, may rely upon them without claiming in the bankrupt court, and may retain their right of action if they choose to rely upon rights already acquired ?
And here it may not be amiss to remark, that the jurisdiction *45of the bankrupt court extends to all cases and controversies, in bankruptcy, arising between the bankrupt, and any creditor, or creditors, who shall claim any debt or demand under the bankruptcy ; between such creditors and the assignee ; between the assignee and the bankrupt; and to all acts, matters and things, to be done under and in virtue of the bankruptcy ; but it does uot extend, in terms, to all the creditors, except that they are entitled to notice of the preliminary proceedings. Those who have not proved their debts, are not to be consulted as to the discharge of the bankrupt. It is further to be observed, that the discharge and certificate, “ when duly granted shall, in all courts of justice, be deemed a full and complete discharge of all debts, contracts, and other engagements of such bankrupt, which are proveable under the act,” not merely such as are proved. And this expression shows that the act requires only, that the creditors shall have an opportunity to prove their demands.
But it is said, that the mortgage is but an accessary, and that it is absurd to destroy the principal obligation, and leave the mere accessary to subsist; that, as the discharge operates as a release of all the debts, it necessarily must release all the mere securities. But it must not be forgotten, that the mortgages and liens are expressly saved and reserved. I infer from these provisions, that the remedy in rem is not destroyed, or annulled, by the discharge. The remedy is saved so far as the specific property is concerned, precisely as an hypothecary action may be carried on against a third possessor, who is not liable personally for the debt.
That such is the practice under the English bankrupt system, is abundantly shown by the authorities to which our attention has been called. Creditors holding a security are not permitted to prove, unless they will give up their security, or the value has been ascertained by a sale of it. When the creditor thinks the property forming the security is not equal to the payment of his debt, he may apply to have it sold, and to be admitted as a creditor for the residue. Personal securities may thus be sold, as well as an estate. Nor can a second mortgagee be compelled to join in such sale obtained by a prior mortgagee. The same rule applies to the right of a vendor for any part of the purchase money un*46paid, or what we call the vendor’s privilege. Bankrupt Law, p. 104, 105, etseq.
All the commentators, whose works I have seen, upon the late act of Congress, put this construction upon it. Owen, in his Treatise on the Law and Practice of Bankruptcy, says : “ When an estate has passed from the bankrupt, defeasible upon the performance of a condition, such as that created by a mortgage, the assignee has, by virtue of the decree, the equity of redemption, and may either redeem the mortgage under the direction of the court, or sell the estate subject thereto.” — page 61.
So far as I have been able to learn, the decisions of the Circuit Courts of the United States, have been uniform on this point, and consonant with the. views herein expressed. In the matter of Enoch Cook, in the Circuit Court of Massachusetts, Judge Story held that the lien of a judgment upon property attached, according to the laws of Massachusetts, was within the proviso of the second section of the bankrupt law, and saved thereby, and is wholly unaffected by the proceedings in bankruptcy, when the judgment had been obtained in the regular course, before any petition, or decree, or discharge, in bankruptcy. An injunction was, therefore, refused to stay proceedings by the judgment creditor, on his judgment in the State Court. The lien was perfect by the effect of the judgment; and it wás decided, that the assignee was not entitled to take the property, subject to the lien, but that the creditor might proceed on his judgment. “ The proceedings in bankruptcy,” says the court, “ after the judgment, can have no effect whatever upon that judgment, or upon the property attached in that suit. The creditors have made their rights, (call it, if you please, their lien,) perfect under the attachment.”
According to the doctrine here contended for, the assignee in that case would have been entitled to take the property, subject to the lien, and sell it, giving to the judgment creditor a preference to be paid out of the proceeds, after deducting a share of all the expenses of the administration of the bankrupt’s assets, proportioned to the amount of the sale. This is not what I call saving a lien or mortgage, under the proviso of the second section. Suppose the creditor is satisfied with his investment and with his security ? Shall he be compelled to receive his money, *47or a part of it, and to submit to a sale of the property, according to conditions unknown to the law when he Contracted ?
I conclude that the prohibition might to be set aside.

Rule made absolute and prohibition granted.