Duvall v. Speed

The Chancellor : If the doctrine contended for by the solicitor for the petitioners be sound, and the court is bound to disencumber the title of all liens, it might sometimes find itself in an embarrassing situation, and unable to do what the purchaser has a right to require. In the case of Ellicott vs. Ellicott, already referred to, the court said, the mortgagees who were not made parties to the bill, “were not bound to come in and seek payment under — 233 — the proceedings in the Chancery Court, for the sale of the deceased’s real estate, but might cling to the property specifically pledged for the payment of their debt, and hold on until they were fully paid, both principal and interest.” But if the court is bound under all circumstances, when the money is within its control, to clear the title, it must have power to bring in the incumbrancers, whether they are willing or not, and thus deprive them of the right to stand out, and to cling to the property, which, as has been shown, the Court of Appeals say, they are entitled to do, and thus it might happen that the court would be under an obligation to do that which it could not do, without trenching upon the recognised rights of parties, not parties to the cause when the decree passed. Chancellor Hanson, in the case of Miller vs. Baker, reported in 1 Bland, 147, in the note, admits that the vendor of the estate sold under the decree in that case, could not be compelled to receive his money, unless he exhibited his. claim, or was called to answer a bill or petition for a conveyance, and of course concedes, that the court had no power by any proceeding in that case, to clear the title. There is, moreover, another very strong objection totheprayer of this petition. When the order of the 5th June was passed, dismissing the petition of Speed and Pennington, asking for the payment, of this same judgment, out of the proceeds of the sales of the property in this case, the trustee’s report of the sales had not been ratified, and of course no appropriation had been made of the purchase money. But since then, to wit, on the 28th of the same month, the final order of ratification passed, and on the 30th July, following, the Auditor’s report, appropriating the net proceeds of the sale to the payment of the claim of the mortgagee, in part, leaving still a considerable sum due him, was also ratified, and the money directed to be so applied. It was not until the 15th of January last, nearly six months after the ratification of the report of the auditor, giving this direction to the money, that the present petition was filed, which seeks, so far as the pay — 234 — ment of the judgment is concerned, to reverse that order. This strikes me as presenting a very serious difficulty, though as I am of opinion, that upon other grounds the prayer of this petition cannot be granted, I do not now propose to express a decided opinion upon it. It was suggested in the course of the argument, that the insolvency of Sevier, the mortgagor, and the appointment of a trustee for the benefit of his creditors, might have some influence upon these proceedings. But as this trustee was made a party to the bill by amendment, and consented to a decree, and a sale has actually been made and reported and finally ratified by the court, I cannot think the proceedings can now be questioned upon this ground. An order will be passed dismissing the petition. [On the llth of April, 1848, Duvall and Saussar filed their bill, praying an injunction against Speed and Pennington, who were proceeding to enforce their judgment against the property purchased by complainants, upon the ground that they purchased free, clear and discharged of all claim of the parties to the suit of Hodges vs. Sevier and others — that Duvall, the trustee, was a party thereto, and, as such, represented the judgment creditors, who could not, therefore, proceed again to sell property which had already been sold by their agent, the said trustee ; that all the interest of Sevier was sold, and the proceeds, if any, were due and payable to the trustee, Duvall, for the benefit of his creditors, and against this fund, alone, in the hands of the trustee, could the judgment creditors proceed, according to the acts of assembly in such case made and.provided; and, finally, that no proceeding had been instituted against the trustee under the insolvent laws, nor had any claim been exhibited to him on account of the judgment aforesaid. Upon this bill, the Chancellor, Johnson, ordered an injunction as prayed, and the answer having been filed, setting forth all the facts as detailed in this report, the cause came on to be heard, upon bill and answer, on the motion to dissolve the injunction. Various questions were raised and argued at the hearing upon — 235 — this motion, but the grounds upon which the Chancellor decided the cause, will appear from the following extracts from his opinion, filed on the 27th July, 1848, viz.] The Chancellor: When the application for the injunction was made, I entertained very serious doubts as to the propriety of granting it, but not seeing that any material injury could result to the judgment creditor, from a temporary suspension of his right to enforce it by execution, andbeing willing to hear the views of counsel before making up a definite judgment upon the subject, I thought it best to order the injunction, that a more careful consideration might be given the case when the motion to dissolve should be made. Upon the petition of these complainants, Duvall and Saussar, filed in the case of Hodges vs. Sevier and wife, the proceedings in which case are made parts of this, I had occasion to examine the question of the extent and character of the title which a purchaser acquired from a trustee selling under a decree of this court, and the result was, that “as a general rule, the title of the parties to the suit and nothing more, was sold and, that though a purchaser discovering a defect in his title, at the proper time, might be relieved from his purchase, by asking for a rescisión of the sale, he could not be permitted, whilst holding on to his purchase, to insist upon having his title perfected by the application of the proceeds of sale to the extinguishment of the claims of incumbrancers not parties to the suit. And the petition in that case was dismissed upon the ground, that these defendants, the judgment creditors, were not parties, and their lien, consequently, not extinguished. This decision was made, too, with full knowledge and due reflection upon the fact, that Duvall, the trustee of the insolvent, was a party to the suit, and had consented to the decree ; and, consequently, it follows, that his presence as a party was not considered as dispensing with the presence of the incumbrancers themselves. Or, in other words, that the trustee was not to be regard — 236 — ed as their representative. But, for this conclusion, the prayer of that petition must have been granted. That this judgment was a lien at the time of the execution of the mortgage to Hodges is incontestibly settled by authority. Murphy vs. Cord, 12 Gill & Johns., 182; Rankin and Schatzell vs. Scott, 12 Wheat., 177. And, it is equally indisputable, that if the judgment creditor was not a party to the suit, he was not bound to seek payment out of the proceeds of sales in the hands of the trustee, but might prosecute his lien against the property, after its conveyance to the purchaser. Brooks vs. Brooke et al., 12 Gill & Johns., 318. These propositions arenot understood to be denied, but it is insisted, with much force, that notwithstanding the former decision of this court upon the petition of the complainants in Hodges’ case, and which, as has been explained, could only have been pronounced upon the hypothesis, that these judgment creditors were not to be regarded in any sense as parties to, and bound by, the decree in that suit; this court will now upon this bill declare, that they were parties, and bound by the decree, because the insolvent trustee was a party and consented to it. The Court of Appeals, in the case of Alexander vs. Ghiselin and others, decided at December term last, that upon the true construction of the seventh section of the act of 1805, chapter 110, the trustee of an insolvent debtor, whose property had been taken in execution before his application for the benefit of the insolvent laws, is, nevertheless, to make the sales applying the proceeds to the satisfaction of the liens ; that, upon such application, the property of the petitioning debtor, no matter how incumbered, and though in custodia legis, is to be taken possession of and sold by the trustee, in order that there may be but one administration of the estate. And, it is insisted, that the principle of this decision extends to the present case ; and, that the sale made under the decree of this court, upon the bill filed by Hodges, the trustee of the insolvent debtor being a party thereto and assenting to the decree, produces the same legal consequences as if the sale had been made by the — 237 — trustee of the insolvent, himself. Or, in other words, because such trustee .sells free of incumbrances, as he must do, in order to accomplish the purposes of the insolvent system, that the same result must follow when a sale is made by a chancery trustee, in a case to which the trustee in insolvency is a party.” But can this be so ? If it is, then the fund raised by the sale in Hodges’ case, should have been handed over to the insolvent trustee, to be administered in insolvency by him, and its distribution by this court was improper. The insolvent system, as contained in the act of 1805 and its supplements, is a system to be administered by the courts of law, and with which this court has nothing to do ; the County Court is to appoint the trustee — to order the sale — to fix the commission — and to limit the time for the creditors to bring in and declare their claims.. ' Now, if the trustee appointed by this court can by any consent of the trustee in insolvency, be so far substituted for him, as that a sale made by the former, shall pass to the purchaser an unincumbered title, to the same extent, as if made by the latter ; and, if this court, by reason of such assent, or presence of the insolvent’s trustee, as a party to the cause, can administer the insolvent system, it should do so, as the County Court is required to do by the act of assembly. The creditors should be called in upon notice, as provided for by the 12th section of the act; for surely nothing could be more unjust, than that their rights should be concluded, with-. out an opportunity of asserting them. If the argument of the counsel of the complainant is sound, that the insolvent trustee represents all the creditors of the insolvent, then it follows, not only that these judgment creditors are concluded, but all the other creditors of the insolvent are in the same situation, though they may have had no notice whatever of the existence of this chancery suit, and of course no opportunity of presenting their claims. Now, suppose it should turn out, that there is some other creditor of Sevier, having a lien older than Hodges’ mortgage, who never, as these creditors did, came in and asked to be paid out of this fund, and who in point of fact, had no no — 238 — tice whatever of the proceedings, would it not be most unjust to turn him away by saying, that though not here in person, you were by representative, and you must look to him. And then, when he applied to him and complained, that he had suffered the fund to be distributed, without regard to his rights, the answer would be, the fund has been distributed by a court of competent jurisdiction, for which the insolvent trustee could not be held responsible. I cannot bring myself to think, that the case of Alexander vs. Ghiselin can be carried to an extent which must be productive of such injurious consequences. The bill in that case was filed for the purpose of having the estate administered in insolvency. But in Hodges’ case, it was the bill of a mortgagee, asking for the enforcement of his specific lien, and the trustee of the insolvent was brought in, because the equity of redemption had devolved upon him by operation of the insolvent laws. The construction contended for by the complainants’ counsel would not only make the Court of Chancery the tribunal for the administration of the insolvent system, but as several bills for the enforcement of several mortgages, (if the insolvent had executed more than one,) might be filed in the different equity courts of the state, that singleness of administration, which the system aimed at, and which the Court of Appeals considered so important in Alexander’s case, would be entirely defeated, and instead of simplicity and uniformity, the utmost confusion would be the unavoidable result. But it is said, the judgment of the defendants has been improperly revived, because Duvall, the insolvent trustee, was not a party to the scire facias, and that, therefore, this court ought not to dissolve the injunction. I do not deem it necessary to express an opinion upon this point, thinking it more properly belongs to the courts of law. If the judgment has been improperly revived, and is a nullity, as is contended, then no title will pass-to the party who may purchase under an execution issued upon it, and the complainants will not be injured. But surely it would be improper in — 239 — this court to prejudge that question, it being a question of law, or to interfere in any way with the rights of the parties under the judgment, unless some sufficient equitable ground was presented, which I think has not been done. The injunction, therefore, must be dissolved. [No appeal was taken from this order.]