Hutchings v. Muzzy Iron Works

12 F. Cas. 1076, 6 Chi. Leg. News 27

• Court: District Court, D. Maine
• Decided: July 1, 1873
• Status: Published

Opinions

By HAMLIN, Register:

The argument of the solicitor for the Muzzy Iron Works is, that the legal freehold of the mortgaged premises is in the mortgagees, and unless restricted by the conditions in the mortgage, they might enter at once and hold the same even before condition broken, and with force, etc. Such are undoubtedly the relations of mortgagor and mortgagee at common law. It is sufficient to observe that the bankruptcy of the mortgagors changes the remedy of the mortgagees. Per Lowell. J., Foster v. Ames [Case No. 4,965]. And “proceedings in bankruptcy are based upon principles of equity.” Per Fox, J., in Re Stowe [Id. 13,513], The common law undertakes to decide only between the plaintiff and defendant, and after proceedings in bankruptcy are commenced, where various classes of creditors are interested in the estate, resort must be had to equity in order “to secure the rights of all parties and due distribution of the assets among all the creditors.” An unbroken series of decisions concur in establishing the jurisdiction of the district court sitting in bankruptcy over the parties and the subject matter from the filing of the petition, and withholding all power from the mortgagees to take possession of any portion of the bankrupt estate without the consent of the bankrupt court. The solicitor cites Pennington v. Sale [Id. 10,939], and In re Noakes [Id. 10,281], in support of the principle that “assignees must surrender to owners property found in the possession of the bankrupt, but belonging to others.” In the former, the court retained possession of the property in controversy, and in the latter, held “that if the assignees are satisfied that the property taken by them did not belong to the bankrupt, they should return It without delay to the owners;” thus recognizing the distinction between cases where, on the one hand, the property does not belong to the bankrupt, and therefore does not pass to the. assignee, and where, on the other hand, the property belongs to the bankrupt, and being a part of his estate, by the assignment becomes vested in the assignee. The land mortgaged to the Muzzy Iron Works by Blackman Brothers is a part of the bankrupt estate, passed to the assignee by the assignment, and in the same sense of the term as employed by the court, supra, “belonged” to the bankrupt.

The intent of congress in preventing interference with the bankrupt’s estate by precepts from other courts after proceedings in bankruptcy have been commenced, is primarily to enable the bankrupt court to have and retain the custody and possession of the bankrupt’s property for the purposes of the bankrupt act. This intent is as much contravened by these mortgagees taking possession in the manner they did, as it would have been if.they had taken possession under process of a state court after proceedings in bankruptcy were commenced. If such possession is valid, then no reason is perceived why persons having other kinds of liens, whether by statute, contract or otherwise, on real or personal estate, may not also take possession of the property upon which they have a lien after proceedings in bankruptcy are commenced, whenever by the laws of the state they can legally do so without resort to process from the state courts, and whenever by so doing they will benefit themselves — a claim wholly inconsistent with the prompt, speedy and advantageous settlement of the bankrupt estate by the assignee, contemplated by the bankrupt act, and in opposition to the settled practice of this court. The concession of such right to possession before the determination of the validity of the lien or mortgage, might prevent assignees from bringing that question into court, and thus work serious injury to other creditors, and practically deprive the bankrupt court of its jurisdiction in many cases. Says Hawley, J., in Re Snedaker, 3 N. B. R. (Quarto) 155, in a full and elaborate opinion: “Por just and equitable purposes, and to guard against fraud, the- act rightfully takes the pledged property or lien out of the power of the secured creditor’s control or management in reducing it to money in his chosen way without responsibility, and places it in the hands of the assignee of the bankrupt, who, being an agent of the court, and at the same time the representative of the rights of . all parties in interest, is supposed to be above all temptation to fraud, and directs him in such capacity, and under the pledge of his official bond as assignee and under the direction of the court, to convert such mortgaged or pledged property into money, and to distribute the same under the provisions of the act, with due regard to all priorities shown to exist in the proceedings of bankruptcy by proofs of claims against the bankrupt. So far from taking any right or rights from the secured creditor .under the mortgage, lien or pledge by which he holds the same, it simply regulates the modes and means of foreclosing the mortgage or other lien, and of reducing such security to money, in order that the court may be able to enforce exact justice.” * * * No better illustration of the justice of these interpretations of the bankrupt act can be found than in the present case. In their report at the second general meeting, the assignees say that they are completing delivery of staves manufactured by them under a contract with the Cobb Lime Company, made by the bankrupts with that company before proceedings in bankruptcy, and from stave material which they found on hand at the mills, and expect, from this source, to derive sufficient funds to pay off a large amount of priority claims due the workmen, as well as other debts, for the benefit of creditors; that this is the principal source from which they are now realizing money for the estate. If these mortgagees were entitled to the possession of the mills without invoking the aid and consent of the bankrupt court thereto, the creditors might lose the benefits which they are now receiving from the stave contract. What obligation would rest on the Muzzy Iron Works, when once in possession, to complete the stave contract, or pay over the proceeds to the bankrupt court?

1. Por these reasons, the register is of opinion that the first question arising upon the certificate should be answered in the negative.

2. Being of the opinion that the Muzzy Iron Works should apply to the bankrupt court on petition, in accordance with the usual practice, it seems that the court should not answer the second question in the present stage of proceedings.