City Bank v. Houston

2 La. Ann. 114

Opinions

The judgment of the court was pronounced by

Eustis, C. J.

This is an hypothecary action, in which the creditor asks for a decree subjecting certain properly in the possession of the defendants to the payment of his debt. The defendants plead in substance that they purchased the property at a judicial sale, made of a bankrupt’s estate, under a decree of the bankrupt court, with a clear certificate of the recorder of mortgages that the proceedings in bankruptcy were regular, and that by reason thereof and the discharge of the bankrupt, and by the decrees of the bankrupt court, the mortgage was extinguished and lawfully cancelled, and the property released from any charge or incumbrance resulting therefrom. That they were bond fide purchasers and paid the purchase money; and that the City Bank was cognisant of the sale and of all the proceedings in bankruptcy, and is bound by notice and knowledge of the same. There was judgment for the defendants, and the plaintiffs have appealed.

The transcripts of the different proceedings and the other documents have been so methodically set forth in the printed statement furnished in the brief of the counsel for the plaintiffs, that it would be useless to give any further analysis of them.

Footnotes

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* We proceed to give our decision on the different questions of law which this interesting case presents.

I. We do not consider that there is anything in the conduct of the officers of the bank, as it is before us in evidence, which would bind the bank by the sale of the mortgaged property. They acted on their view of the law consistently throughout — misled no one, deceived no one. The different opinions among professional men in relation to the powers of the bankrupt court are matters of notoriety, and prevented any one from acting otherwise than with caution and deliberation in the purchase of mortgaged property at bankrupt sales. It is impossible for us to overlook a fact which thus excludes the plaintiffs from the operation of the salutary and equitable rule invoked by the counsel for the defendants.

II. The late Parish Court for the parish and city of New Orleans, at the instance of the assignee of the bankrupt, rendered a judgment against the recorder of mortgages, by which the latter was ordered to cancel the mortgage which is the subject of the present suit, and to grant a certificate of no mortgage. On an appeal the judgment was affirmed. The plaintiffs were not parties to those proceedings and are not bound by them, and the mortgage in question ex. istingon the property at the time of the sale and afterwards, unless released by the decree of the bankrupt court, or by the sale itself, so far as the defendants are concerned, must be considered, for all the purposes of this enquiry, as subsisting.

III. The power and jurisdiction of the bankrupt court in this respect must be next considered. This is a case in which the bankrupt court, at the instance of the assignee, without the consent of the mortagage creditor, ordered mortgaged property to be sold, and the mortgage to be cancelled in the manner authorized by our laws in a concurso, considering the assignee as vested with the same authority as is exercised by syndics in the settlement and liquidation of insolvent estates under the cessio bonorum.

The argument presents two antagonist systems as the true theory of the bankrupt act of 1841, and we have to decide between them. One gives to the bankrupt court an unlimited and absolute control over all mortgages, liens, privileges and encumbrances on all the property surrendered by the bankrupt; the other confines its jurisdiction to the unencumbered assets belonging to the bankrupt, except in cases in which parties may voluntarily apply to the court for relief, or remedies may be sought to be enforced against them which are authorized by special provisions of the bankrupt act.

The different opinions entertained by enlightened and learned men on this subject attest its difficulty; and we are relieved by their researches from the labor, and, in some degree, the responsibility, of determining the question as res nova> by having it in our power to adopt one of the conflicting theories^ under the convictions which the full discussion of the whole subject has produced on our minds.

Without drawing into question the constitutional power of Congress, under the anthority to establish an uniform system of bankruptcy throughout the United States, to vest the jurisdiction in the bankrupt court, which is contended for by the counsel for the defendants, it is not a little singular that, for these absolute powers contained in such a jurisdiction over the property of third persons, the exercise of which depends upon the will of any one who chooses to apply for the benefit of the act, there is no express warrant in the act itself, nor are these powers necessary to carry it into effect.

The object of the bankrupt law was to discharge debtors from their debts. An artificial state of things was supposed to require the great remedy of noves tabules. This was the purpose of the act; and there was neither reason nor policy in touching any other rights of property than those which stood in the way of this object. The.proviso contained in the second section, if it mean anything, must mean this. It says “that nothing contained in this act shall be construed to destroy, annuli, 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.” So far from the act providing for the protection of these rights under its operation, they are expressly excluded from its benefit. All who prove their debts under the act must share alike, with the exception of the United States, those subrogated to their rights, and certain operatives for their wages not exceeding $25.

The proviso of the second section is scarcely more explicit and positive than that which exempts fiduciary debts from the operation of the bankruptcy. Mr. Justice McLean, in the case of Chapman v. Forsyth, 2 Howard 208, in speaking of that class of debts says: “But as the discharge operates only on debts, contracts, etc., which are provable under the act, it is said that consent cannot include fiduciary debts.”

“ Such debts without the assent of the creditor, are clearly not within the act. But if his debt shall be found on the schedule, and he not only proves it, but receives his proportionate share of the dividend, he is estopped from saying that it was not within the law. He is aprivilegeel creditor, and is not bound by the bankrupt law; but he may waive his privilege. As a creditor'he has a right to come into the bankrupt court, and claim his dividend. He does not establish his claim as a fiduciary one, but as a debt proveable within the statute; and, having done this, he can never controvert the discharge.” Vide also, Morse v. City of Lowell, 7 Metcalf, 155. If the mortgage creditor prove his debt under the act, he can only receive a dividend with the other creditors. This, of itself, excludes the conclusion that, the mortgaged property must be sold in the bankrupt proceedings.

Section 11 is coincident with, and justifies this construction. It provides that the assignee shall have full authority, under the court in bankruptcy, to redeem and discharge any mortgage, or other pledge, or deposit, or lien upon any property, real or personal, whether payable in presentí or at a future day, and to tender a due performance of the conditions thereof. By this means the encumbrances being removed, the property belongs to the creditors, and is to be divided rateably among them; but no power is given over the mortgage, pledge or lien, except to satisfy it, and thereby release the property. This is all that can be done by the court in bankruptcy.

If this be not the true construction of the bankrupt act, it certainly recommends itself by its extreme simplicity, by its accordance with the general tenor of the act and its evident purpose and intendment, and it3 conformity with every one of its provisions, and its opposition to none. It giyes the debtor all the relief he is entitled to ask; it discharges him from his debts personally, but leaves the rights of his creditors on property affected by his debts, unimpaired. It leaves the State tribunals in the full exercise of their jurisdiction, except so far as that jurisdiction is divested by the constitutional power of the bankrupt court — with full and complete authority to carry into effect an uniform system of bankruptcy, and prevents that accumulation of power in the bankrupt court, which is to be exercised witliont appeal, and which we cannot believe the act confers.

Some weight is attempted to be given to the contrary construction of the act, from the mode of proceeding under our system of insolvency; but it has no affinity with the bankrupt act. The systém of bankruptcy must be uniform throughout the United States. The enquiry is, as to the jurisdiction conferred by the act on the bankrupt court; the powers of assignees and of the bankrupt court, must be determined by its provisions.

"We find them adequate for their object, consistent, and carrying out well recognised and constitutional powers. If the assignee finds that the property of the debtor is encumbered, he is authorized to remove the encumbrance by satisfying the creditor; he can sell it cum onere, or he can leave the creditor to exercise his right against it at his option; but we find nothing which authorizes the bankrupt court, under this act, to annul any mortgage, lien or security, reserved, as we consider, under the proviso of the second section of the act.

It is also worthy of remark that, it is surprising that in so elaborately prepared a statute as the bankrupt act, no single provision is made for the mode of exercise of this jurisdiction over pledges, liens and mortgages, for which the necessity was evident. Nor can this omission be considered as an oversight, for the act bears in every part the proof of great care and foresight. In the 11th section the assignee is not even authorized to compound or compromise any debts or securities due or belonging to the bankrupt, except under the authorization of the court, after ten days public notice in a newspaper. The rules of court for proceedings in bankruptcy, prepared under the direction of the Supreme Court of the United States, contained no provision on this important subject.

Such being the view we have taken of the act itself, it now remains to examine the authorities cited. The principal cases on which the appellees have based their argument, in favor of the powers of the bankrupt court under which the mortgages in this case were released, are those of Ex parte Christy (3 Howard’s Reports 293,) and Norton’s assignee v. Boyd, (3 Howard, 427.) Those cases were decided in 1845, and were preceded by two cases decided by the late Supreme Court of this State. Clarke v. Rosenda, (5 Robinson, 27) and Conrad, assignee, v. Prieur, recorder of mortgages, (Ib. 49,) which it is material to notice. The cases decided in the Supreme Court of the United States were both from the Louisiana district, and it is apparent, from the argument of counsel and the opinion of the court, that the decisions of our own court were not without influence in leading the learned judges of the Supreme Court of the United States to the conclusions to which a majority of them arrived.

The Louisiana decisions maintain the extraordinary powers asserted by the bankrupt court to their full extent. But they were made by a bare majority of the court. Judge Martin took no part in the causes, and, on both occasions, Judge Bullard gave a formal and emphatic dissent to the opinions of the court, and supported his views by a thorough and elaborate examination of the sub ject, which we consider unanswerable as a sound exposition of the legal intendment and construction of the bankrupt act.

We think these decisions are founded on two capital errors. One is in taking it for granted that the bankrupt act is in its administration identical with our Louisiana insolvent system, and that all the powers given by our laws to our courts for the liquidation of insolvent estates are given by the bankrupt act to the bankrupt court, which is no less than assuming the very point in dispute. This assumption is founded on a supposed necessity, which authorizes the recognition of implied powers. It is obvious that no such necessity exists, and a very slight examination of the subject will satisfy any one that the supposition is chimerical.

Another error consists in considering the mortgage under our laws, as different from mortgages as they exist in other parts of the Union. But under the bankrupt act, the proceedings in the bankrupt court are, according to the rules and principles of equity; and equity considers mortgages, as our laws consider them, simply as the security for a debt or obligation, 3 Blackstone Com. 435, The distinction between the two is without a difference, so far as relates to the action of a court of equity upon them. And in relation to the supposed necessity of releasing the mortgages in order to facilitate the liquidation of the bankrupt’s estate, we have only to refer to the operation of the bankrupt act in States other than Louisiana, in which the absolute control of the bankrupt court over mortgages has never been asserted; nor is any such necessity supposed to exist under the English system of bankruptcy.

The opinion of the Supreme Court of the United States in Christy’s case, was delivered on an application for a prohibition to the District Court of Louisiana, and it was held that the court had no authority to issue writs of prohibition except in the cases provided for by the statute, that is, where the district courts were proceeding as courts of admiralty and maritime jurisdiction. The applition being in a case in bankruptcy, was disallowed.

The doctrinal portion of this opinion supports the jurisdiction of the bankrupt court to the extent contended for by the counsel for the appellees, and it seeips to be affirmed in the subsequent case of Norton’s assignee v. Boyd et al. The opinions in these cases do not come before us in such a form as to command an acquiescence, and to demand from us a sacrifice of conscience and of our sense of duty .to authority.

Being entirely aloof from those feelings which controversy rarely fails to engender, even with those who are the most anxious to avoid its effects, we have not stated in detail the objections to which we think the opinion of that high tribunal is obnoxious. There is one, however, which it will not, we hope, be considered out of place, if we submit.

The Supreme Court has never decided that the jurisdiction of the bankrupt ¡court was exclusive pf the S,tate courts. The point was reserved in Norton’s case, and the general exercise of the jurisdiction of the State courts on liens and mortgages, we think, renders its lawfulness unquestionable. In order to .enable the bankrupt court to liquidate an estate, according to the doctrine in Christy's case, to class and settle the rank of the privileges and mortgages, to ascertain and give their relative position to the different liens existing under our laws, the jurisdiction must be exclusive, the power must be absolute. A conflicting authority is irreconciloable with a speedy settlement, and leads to litigation and delay, which, it is admitted on all hands, the bankrupt act repudiates

throughout. The only mode by which estates can be settled within a reasonable time, under that act, is by leaving it to operate upon the unencumbered assets of the bankrupt, and enabling those who have rights of property to exercise them in the ordinary tribunals, as their interest or inclination may prompt them.

The necessity of making the jurisdiction exclusive, in order to enable the system to work out its own ends, appears to us so obvious, that we cannot consider that a matter of this importance would be omitted, or even left in doubt, by the distinguised authors of this remarkable law. We cannot belive it was left to be implied, and that such a delegation of power, exclusive and without appeal, over the property of citizens, should be assumed or vested otherwise than openly, expressly, .and in a formal manner.

So much has been before the public on this question that anything further on our part would be merely an exhibition of what has been previously said, and it only remains for us to state our thorough conviction of the correctness of the views taken of it in the cases cited by Judge Bullard, in his dissenting opinions, and which we adopt as an expression of our own.

In witholding our assent to the opinion given in Christy’s case, we are far from considering that we, in any one single point, derogate from the respect which we owe and feel for the memory of the illustrious judge who delivered it, or for that august tribunal from which it emanated. We are acting under the stern responsibility of duty, and under the consolation that, if our views are sound, they will be sustained, and if erroneous they will be corrected by the superior wisdom of those who will be called upon to decide this case in the last resort.

There is a fastidious and irrational delicacy, which shrinks from the examination of every .thing which bears the semblance of authority ; but following the example of that court itself, and the lights which it holds out to those who are in pursuit of truth, we have considered this important subject with great care and solicitude, and cannot refuse to the party litigant the benefit of our conscientious and deliberate convictions.

In the case of the Louisville Railroad, Company v. Letson (2 Howard, 554), Mr. Justice Wayne, in delivering the opinion of the court, says :

“ We remark too, that the cases of Strawbridge and Curtis and the Bank and Beveaux, have never been satisfactory to the bar, and that they were not,' especially the last, entirely satisfactory to the court that made them. They have been followed always most reluctantly, and with dissatisfaction. By no one was the correctness of them more questioned, than by the late chief justice who gave them. It is within the knowledge of several of us, that he repeatedly expressed regret that those decisions had been made, adding, whenever the subject was mentioned, that if the point of jurisdiction was an original one, the conclusion would be different. We think we may safely assert that, a majority of the members of this court have, at all times, partaken of the same regret, and that whenever a case has occurred on the circuit, involving the application of the case of the Bank and_ Beveaux, it was yielded to, because the decision had been made, and not because it was thought to be right. We have already said that the case of the Bank of Vicksburg and Slocomb (14 Peters), was most reluctantly given on mere authority. We are now called upon, upon the authority of those cases alone, to go further in this case than has yet been done. It has led to a review of the principles of all the cases. We cannot follow further; and, upon our matures! deliberation, we do not think that the cases relied upon for a doctrine contrary to that which this court bore announce, are sustained by a sound and comprehensive course of professional reasoning. Fortunately a departure from them involves no change in a rule of property. Our conclusion, too, if it shall not have universal acquiescence, will be admitted by all to be coincident with the policy of the constitution and the condition of our country.”

The act under consideration had but a short existence, but the exigencies of the future may require similar remedies to meet them: and it is, in a political point of view, extremely important to ascertain the extent of power vested in a bankrupt court, by the terms and provisions of this act, which may serve as a guide to be followed, or an example to be avoided, in future legislation.

Under the conclusions to which we have ai-rived, it is unnecessary to examine the other objections taken by-the plaintiffs to the force and effect of the bankrupt proceedings, being of opinion that, so far as they affect the plaintiffs’ mortgage, the court was without jurisdiction. The plaintiffs are entitled to judgment. It is therefore ordered and decreed that the judgment of the Commercial Court be avoided and reversed.

Tbe statement of the case made in this report, is condensed from that referred to as prepared by MM. Lockett and Micou, counsel for plaintiffs.