Nugent v. Boyd/Opinion of the Court

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.