Merry v. Jones

Lamar, J. (after stating the foregoing facts.) If under foreclosure proceedings the State court appoints a receiver to take charge of the mortgaged property, and the defendant is subsequently adjudicated a bankrupt, the trustee is not entitled to the possession of the mortgaged property, but can only claim the surplus remaining after the payment of the secured debt. And where the suit was in fact one to foreclose a mortgage, this rule would not be changed, if as an incident to the main purpose the mortgagee went further and also prayed for relief usually incident to State insolvency proceedings. See Metcalf v. Barker, 187 U. S. 177; Carling v. Seymour Lumber Co., 113 Fed. 483, and cit. But the converse is not true. If the main purpose of the suit in the State court is to inaugurate insolvency proceedings, and a receiver thereunder takes possession of all the property of the defendants, his possession will not be saved from the nullifying effect of the subsequent bankruptcy because it also incidentally appears that the petitioner had a mortgage which was a lien on some of the property, and that it might be enforced in the progress of the administration of the insolvent’s estate. The suit in the State court here was not a foreclosure proceeding. It is alleged that petitioner had [647] a mortgage, but it is also alleged that he had a debt; and, without regard to the sufficiency of the pleading, the relief prayed for may have been asked as well because the complainant was a creditor as because it had a lien. The property on which petitioner had a lien was not described in the pleadings, the mortgage was not attached as an exhibit, it does not appear in the record, and' there is no prayer for a foreclosure. On the contrary, the petition prayed for relief which was appropriate only in an insolvency proceeding. It asked that all the assets of the defendant be taken in charge by the court; that a receiver be appointed; that all creditors be enjoined from proceeding under any other suit, and he required to set up their claims and liens in the pending equity cause; and that the court determine the rights of the parties. While it was not a case under the trader’s act, it was yet seeking to do in the State court exactly what Congress declared shall be done exclusively in the court of bankruptcy, and was rendered nugatory by the adjudication in bankruptcy within four months thereafter. Jones & Company, one of the defendants in that case, was alleged “to have a mortgage on"practically all of the property of the Eogers Company.” This mortgage does not appear in the record; what property of the debtor was omitted does not appear; nor is it shown how much the property so mortgaged brought when sold. It is averred that their mortgage debt was only $1,100, and it appears that the receiver now has in hand $1,725, and that the amount realized by him at the sale was $2,300. Even if it be conceded that upon the nullification of Lowe ■ & Company’s petition the rights of Jones & Company reattached as they existed prior to the filing of the petition, there was no data to determine how much of the money now in the hands of the receiver covered property not included in their mortgage, nor does it appear what was the amount of their debt, nor how much in the hands of the receiver was in excess of that to which they may have been entitled. The trustee in bankruptcy is prima facie entitled to the custody of the property belonging to the bankrupt, and those who dispute his right thereto must overcome his prima facie title by affirmatively showing the existence of the exception. Judgment reversed. All the Justices concur, except Simmons, C. J, absent.