Clarke v. Rosenda

Garland, J. Zabriskie, being indebted to Rosenda in a large — 28 — sum, executed a mortgage to him in the usual form under the articles of our code. The debt, not being paid at maturity, was renewed at different periods, as is fully stated in the case of Rosenda v. Zabriskie, 4 Robinson, 493; and finally executory process was issued, for the purpose of having the mortgaged premises seized and sold, according to articles 732, 733, et seq., of the Code of Practice. To the execution of this order, or decree, Zabriskie jnade opposition, under articles 739, et seq., of the Code of Practice.- The opposition was tried in the inferior court, and upon an appeal to this, was remanded for anew trial. 18 La. 346. Whilst the cause was pending below, Zabriskie applied to the District Court of the United States for the benefit of the act of Congress, approved August 19th, 1841, establishing a uniform system of bankruptcy, placing Rosenda on the list of his creditors, and the mortgaged property on the inventory filed with his petition, as a part of what he proposed to surrender. During the pendency of the proceedings in the bankrupt court, Rosenda continued to prosecute his executory process, and had the lots so mortgaged advertised for sale by the Sheriff of the District Court of the First District; when, on the 7th of October, 1842, the District Court of the United States issued an injunction, forbidding the Sheriff and Rosenda from proceeding. On the 7th of November following, Zabriskie was regularly declared a bankrupt, and Clarke appointed his assignee, who took upon himself the functions granted by law. On the 1st of December, 1842, Rosenda, notwithstanding the decree in bankruptcy, and the injunction granted by the United States’ Court, took a rule on the assignee, in the District Court of the State, to show cause why the sale of the property mortgaged should not proceed, under the judgment and seizure rendered and made previous to the decree in bankruptcy. On the hearing, this rule was made absolute, and the Sheriff of the Court ordered to proceed with the sale, in violation of the injunction issued by the District Court of the United States. The petitioner now represents to this Court, that the proceedings of the Sheriff, and the judgment of the District Court authorizing the same, are contrary to law, as the said court had no jurisdiction or right to take cognizance of the matter ; the proceedings of Zabriskie in the United States’ Court, wherein a decree — 29 — of bankruptcy was rendered on the 7th of November, 1842, having operated a stay of proceedings against the person and property of the bankrupt, in all other courts, from the date of the application to be declared a bankrupt and the order thereon. The Judge of the District Court of the First District, is therefore alleged to be incompetent, to order the sale of property surrendered by the bankrupt. The petitioner further avers, that he is unable to give security so as to take a suspensive appeal, and that a devolutive appeal would be an inadequate remedy ; wherefore he prays that this court will defend him from what he deems an illegal proceeding, and will issue a prohibition to the Sheriff of the District Court, to prevent him from making a sale of the lots of ground under seizure, and that the Sheriff and Rosenda may be perpetually restrained from proceeding further in the premises. The defendants deny that this court can take cognizance of the case in its present form, and aver that it is without jurisdiction. They further aver that Rosenda has never made himself a party to the proceedings in bankruptcy in the United States’ Court, and that he has a right to prosecute his claims in the State court, and to have the property sold, he having a mortgage thereon. The question of the power of this court to issue writs of prohibition, in cases where the inferior courts exceed their jurisdiction, or are taking cognizance of causes not properly belonging to them, has been repeatedly considered, and the power is not now doubted, where a proper case is presented. It is one of the means given to enable us to exercise our appellate jurisdiction, and the writ may be issued before, or after judgment. Code of Practice, articles 845, 846. When a judgment has been given by a judge not having jurisdiction, and process has issued on it, the order is to be directed to the party prosecuting and to the officer, forbidding them to proceed. Code of Practice, art. 853. In this case, the court is asked to direct its order to the sheriff and party, and the court is unanimous in the opinion as to its jurisdiction. Why the Judge of the District Court of the United States, has not caused his mandate or writ of injunction to be respected, is not shown, nor perhaps is improper for us to inquire. It is possible he has not been judicially informed of the fact; but that presents — 30 — no obstacle to our giving the party relief, when a State officer is the instrument about to be used, for the purpose of doing a party an irreparable injury, in violation of law. If the Judge of the First District has exceeded his power and jurisdiction in granting the order in question, there is no doubt of the power of this court to arrest its execution. Although the District Court of the United States may have power to punish the officer, who infringes or violates its order, it cannot correct the erroneous judgment. The other question to be considered, involves the proper construction and operation of the act of Congress, passed the 19th of August, 1841, “to establish a uniform system of bankruptcy throughout the United States,” and the right of a class of creditors to exempt themselves from the provisions of it, unless it be for their advantage to accept of them, merely because they have a particular kind of security, to insure the payment of their debts. The question also calls upon the court to say, whether, under the bankrupt law, there is a class of creditors above it entirely, and excepted from its provisions, which profess to establish a uniform system, or whether they are bound to prosecute their claims under certain restrictions and penalties. My understanding of the objects of the bankrupt law is, that it was as much intended to give relief to embarrassed and unfortunate debtors, as to secure creditors in their rights. The different, and in some instances oppressive, State laws in relation to insolvent debtors, were intended to be abrogated; and for the purpose of securing creditors, and liberating debtors, who should honestly surrender all they possessed, the tribunals of the United States were invested with equity powers, (according to Judge Story,) mod wide and liberal than an English Chancellor was ever authorized to exercise. They possess a general equity jurisdiction ; and yet it is said, that the class of creditors having no security for their debts, cannot bring in the class that have, to have justice administered to all, and the rights of each respected and enforced; and that the bankrupt cannot bring them before the court, although bound to cite them, for the purpose of procuring his discharge. In my opinion, the erroneous conclusions to which many intelligent minds have arrived, arise from not properly discriminating — 31 — between the widely different provisions of the English bankrupt laws and our own, and the weight given to decisions made by eminent judges, under an impression that there is more analogy between the statutes in England and the United States, than really exists. In Great Britain, the bankrupt acts are remedial statutes made for the benefit of the creditor, to enable him to coerce the surrender of the property of his debtor, and to have it applied to the payment of debts ; but with us, Congress had another and very different object in view, which was to enable the debtor, by giving up his property to his creditors, to compel them to discharge him entirely, provided he makes a complete and fair surrender. There is in my mind a marked distinction between a voluntary, and an involuntary bankruptcy, and the consequences are, therefore, different. The principle of voluntary bankruptcy, as understood by us, and fixed by the act of Congress, is unknown in England to this day, the provision in a recent statute being widely different from that in our act of Congress. See act 6 Geo. IV., ch. 16, and 7 Geo. IV., ch. 57. It was also unknown in the act of Congress of the 4th of April, 1800. 3 Laws U. S., 320. Having premised, that the object of the late law of Congress, was to relieve debtors, to secure to creditors the proceeds of the property surrendered, and to dispense with the State insolvent laws, I will proceed to examine the different clauses of the bankrupt act, and endeavor to show, that the United States’ Courts are vested with ample powers to effect all these purposes; that consequently the State courts have no jurisdiction, and cannot interfere in a case between a creditor put on the list of the bankrupt, and the assignee, in any matter relating to the final liquidation of the estate surrendered. The first step to be taken by a debtor about to avail himself of the benefit of the act, is, to make an accurate list of his creditors, stating their respective places of residence, and the amount due to each. An accurate inventory of his property, rights, and credits, of every kind, with a description of the location, and situation of each, and every parcel thereof, must also be made, and verified by oath. The presentation of these documents to the court, with a petition staging the inability of the party to pay his debts, is an act of — 32 — bankruptcy, and must be so declared, unless the creditors can prevent it. Sec. 1, Bankrupt law. All the property and rights of property of any and every description, real, personal, or mixed, is, from the moment an assignee is appointed, at once and by operation of law vested in him, and the bankrupt is divested of all title, without further assignment or conveyance, and the assignee is authorized to sell, manage, and dispose of the same, under the orders of the court, in the same manner as the bankrupt could have done. Sec. 3. All the creditors named in the list presented by the bankrupt, must have notice of the filing of the petition, and application for a discharge. Sec. 4. In all these proceedings we see little or no similarity to the English proceedings in bankruptcy, or to those formerly pursued in the United States. The debtor made no list of his creditors or property ; he could not acknowledge himself a bankrupt; no notice was given to the creditors ; nor did the property vest in the assignees, until after long and tedious proceedings, and a regular deed of bargain and sale. 2 M. & S. 446. 3 Petersdorif’s Abridgment, 684, et seq. The sections 63, 64, 65, of the act of 6 Geo. IV., ch. 16, show clearly, that the mere appointment of an assignee, did not, in England, divest the bankrupt of the legal title to the property he possessed, as under the act of Congress. The commissioners were authorized to convey the bankrupt’s rights. The legal title, according to the common law, is much modified, if not changed by a mortgage upon the estate ; it is not by our law. For the purpose of protecting the liberty of the debtor, and the property surrendered for the benefit of the creditors, the Circuit and District Courts of the United States have jurisdiction, in all matters and proceedings in relation to the bankruptcy ; the proceedings are to be summary; the courts are always open; and the authority of the Judges extends to all cases and controversies, between the bankrupt and any creditor, or creditors, who claim any debt or demand under the bankruptcy; to all cases and controversies between the creditors and the assignees, whether in office or removed; to all cases between the assignee and the bankrupt; and to all matters and things, until the final distribution, and settlement of the estate, and the close of the proceedings. All sales, transfers, and other conveyances of property and rights, can only — 33 — be made at such times and places, and in such manner as the court shall direct; the money received is at the disposition of the court; and, to sum up all, I repeat the remark of Judge Story, that no English Chancellor ever possessed, or exercised powers so great as those vested in the United States’ Courts, with full authority and jurisdiction, to compel obedience to all their orders and decrees, either by process of. contempt, or remedial writs. Sections 6, 8, 10. I cannot imagine a more ample investment of jurisdiction than Congress has conferred on the Circuit and District Courts of the United States, and the extent of the jurisdiction proves, that the National Legislature, whilst exercising its constitutional power to establish a uniform system of bankruptcy, intended to suspend, if not to sweep out of existence the insolvent laws of the States, and the jurisdiction of their tribunals, and to establish other tribunals with ample powers, where justice should be alike administered to all, and a general system formed and controlled by a body of Judges, deriving authority from the same power that made the law. Entertaining, as I do, the opinion that the courts of the United States have entire and complete jurisdiction over every question relating to the property surrendered by a bankrupt, its sale, and the disposition of the proceeds, I might here stop, and rely upon those tribunals exercising their powers, in conformity with the decision of the Circuit Court, recently given in the case of Christy, Assignee, &c. v. The City Bank of New Orleans. But it has been gravely contended,, and argued with much ability, that although Congress has bestowed the almost unlimited powers mentioned on the United States’ Courts, and intended to suspend, if not abolish all State insolvent laws, yet there is a large class of creditors, and a vast amount of property placed on the inventories of bankrupts, that is excepted, and remains under the care of the State tribunals. These positions I will now examine. It is not pretended, that there is any personal disqualification or privilege, that prevents such creditors as Rosenda, from going, or being brought into the bankrupt court, nor is there any thing in the nature or form of the contracts, that excludes them ; but the reason is, that the creditor has a particular kind of security to insure the payment of his debt, which is to be abandoned if he — 34 — appears in obedience to the summons or notice given him, which security can only be made available in a State tribunal, unless the creditors choose to present the matter in a certain mode to the United States’ Court. It has always appeared to me remarkable, that Congress, if it intended that all creditors having securities by mortgage, pledge, or lien of any description, should stand out of court at their pleasure, should not have made some more explicit provision for their government, and for the disposition of much the largest portion of the property bankrupts would be likely to surrender; and as to the mode by which the bankrupt should obtain a discharge, that would be operative against such creditors afterwards. It seems to me a strange anomaly, that the law should require of the party asking to become a bankrupt, to furnish the names and residence of all his creditors, with a description of all his property, and that such creditor must be notified of the application, but when cited is not bound to appear, or if he does appear in the bankrupt court, is obliged to surrender a portion of his rights. The consequences to which the doctrine contended for, will assuredly lead, are so pernicious and inconvenient, that it is impossible for me to believe it sound; and, I repeat, that it is founded upon decisions made in the English tribunals, under laws widely different from ours. To enumerate all their discrepant provisions would occupy too much space; but I cannot omit noticing a few. By the English statute of bankruptcy, 6 Geo. IV., c. 16, sec. 81, it is enated that all executions and attachments, against lands and tenements, or goods and chattels, bona fide executed or levied more than two months previous to the issuing of the commission shall be valid, notwithstanding the act of bankruptcy, provided the person issuing it had no notice of the act of bankruptcy. The English books are full of cases brought by the assignees against the creditors, to recover from them money made on execution after the act of bankruptcy was known. 3 Petersdorff’s Abridgment, 806. 2 Bl. Rep. 827. 1 H. Bl. 665. Actions of trover have been repeatedly maintained to recover the goods seized after the act of bankruptcy was known, not only against parties to it, but against the Sheriff who executed the process. 3 Petersdroff, 815. 1 Bl. Rep. 65. 1 Lev. 173. — 35 — A right of distraining for one year’s rent, immediately preceding the date of the commission, is reserved by the statute in England, (6 Geo. IF., c. 16, sec. 74); and various other privileges or preferences are recognized by the statute, to be enforced in the ordinary tribunals, (sec. 81,) unknown to the act of Congress. The latter is, in fact, more an insolvent law, than a statute of bankruptcy ; and the attempt to combine the provisions of both, has led to doubts in what way the act of Congress is to be carried into effect. From some personal acquaintance with the objects, which some of the framers of our bankrupt law had in view, I am satisfied, that it was their intention that all the creditors of the bankrupt should be in court, and all the property, whether incumbered or not, administered under its supervision. If such were not the intention, I see but little use in citing all the creditors, and having an inventory of the property. If conformity to the English statutes was expected, why were not their requirements inserted ? The framers of the law had all the modern British statutes before them, and we see but little conformity to them; it is therefore fair to presume, that something different was intended. Were it not for the provisions contained in the 5th and 11th sections of the act of Congress, I presume there would not be a doubt, that all the creditors were bound to come into the bankrupt court, and that the property should be administered under its supervision and control. The first of these sections provides, “ that all creditors coming in and proving their debts under such bankruptcy, in the manner hereinafter prescribed, the same being bona fide debts, shall be entitled to share in the bankrupt’s property and effects, pro rata, without any priority or preference whatsoever, except only for debts due by such bankrupt to the United States, and for all debts due by him to persons who, by the laws of the United States, have a preference, in consequence of having paid moneys as his sureties, which shall be first paid out of the assets; and any person who shall have performed any labor as an operative in the service of any bankrupt, shall be entitled to receive the full amount of the wages due him for such labor not exceeding twenty-five dollars.” This section further provides, that “ no creditor or other person, coming in and proving his debt or other claim shall be allowed to — 36 — maintain any suit at law or in equity therefor, but shall be deemed thereby to have waived all right of action and suit against such bankrupt; and all proceedings already commenced, and all unsatisfied judgments already obtained thereon, shall be deemed to be surrendered thereby.” It was the intention of the law-maker, in this section, to do a variety of things ; first, to establish a mode of distribution to be pursued in the bankrupt court; secondly, to direct specially a certain preference to be given to debts owing to the United States, or persons claiming under them; and thirdly, to create a privilege previously unknown to the laws of the United States in favor of laborers. It was further intended to prevent any creditor from suing for his debt in another court, or prosecuting a judgment already obtained by execution or otherwise, after having received his share of the assets. But nothing is said of any forfeiture of his legal rights, securities, or privileges. They are secured and controlled by the last proviso of the second section, which says, that “ nothing in this act contained, shall be construed to annul, destroy, 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.” To give this proviso effect, it is contended, that a mortgage creditor must not go into the bankrupt court at all. If he do, and prove his debt there, it is said, that he loses his preference ; and this idea is founded upon a practice, and decisions based on a statute, that contains no such exception. My opinion is, that the object of this proviso, was to regulate the rights of the parties in the bankrupt court, and to prevent the multiplication of suits, and the prosecution of demands before different tribunals. That I am certain, was the object of some of the framers of the bankrupt law, and I see no reason why the rights and privileges of mortgagees, and other creditors having liens, cannot as well be adjusted in the United States’, as in the State courts. It appears to me as rather technical to say, that because a mortgage, or privilege creditor, alleges that he has a mortgage or other security, he thereby forfeits it. The 11th section of the act is further relied on to prove more — 37 — conclusively, that the mortgagee is not bound by the proceedings in bankruptcy. It says, “ the assignee shall have full authority, by, and under the order, and direction of the proper 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 prcesenti, or at a future day, and to tender a due performance of the conditions thereof.” This clause does not seem to me necessarily to exclude the mortgage creditor from the bankrupt court; but on the contrary to assume, that he is in court, and that he insists upon the execution of his rights, in a manner that the assignee may deem injurious to the interests of the other creditors, in which case power is given to the District Judge, to direct a portion of the funds belonging to the creditors who possess no privileges, to be applied to the redemption of the mortgage or lien ; or such a proceeding may be necessary, where the property is neither in the possession of the bankrupt nor his assignee ; or where the legal title is vested in the creditor, as is the case with mortgages in England, and in those States where the common law prevails ; or where a qualified property exists, as in the case of a pawn or pledge. This view of the case is sustained by an examination of sec. 70 of the act of 6 Geo. IY., ch. 16, and Archbold’s notes on the statute, 129, 130, and the authorities he cites, and from the constitution of the English tribunals emanating from the same authority, and not, as ours, deriving their power from separate sources. I have not seen any decision of an English court since the act of 1 and 2 William IV., ch. 66, which created a bankrupt court, and specially vests all the property in the assignee, and therefore cannot tell whether the previous decisions have in any degree been modified or altered. The decisions of Judge Story and others, as quoted from the different numbers of the Law Library, and newspapers, are not in my opinion entirely correct, being based upon precedents and decisions, -under the old English statutes relating to bankruptcy. If it be permitted to the creditors of a bankrupt, secured by mortgage or privilege, to stand out of the bankrupt court, as long as they think proper, and prevent the property surrendered from — 38 — being sold, it would have the effect of enabling them to delay the administration, and final settlement of the estates of bankrupts, in contravention of the 10th section of the act of Congress, which provides for their prompt liquidation and settlement. To this it is answered, that the assignee may sell the property surrendered, subject to the mortgage or lien existing, or, in other words, sell the equity of redemption. To this mode of selling property, I see many objections ; and very few cases would arise in which injury would not result to the mortgagees or ordinary creditors. Take the case now under consideration as an example. The amount actually owing by Zabriskie, is in controversy, and in the present state of the case it is impossible to fix any sum, for which the property can be sold. It is therefore proper that the rights of Rosenda should be examined and settled, contradictorily with those whose interests are so closely connected with his. Many cases can be supposed in which it would be very difficult, if not impossible, to carry out the idea of selling the property subject to the lien or mortgage. Take the case of a judicial mortgage, which operates on all the immoveable property of the bankrupt; or the legal mortgage and privilege, which a married woman has for the restoration of her dotal property, which extends not only to immoveables but moveables. There would, in such cases, be no mode of disposing of the property, but by selling the whole estate at once ; which could not result otherwise, than in injurious consequences to all the ordinary creditors. Considering the embarrassments, delays, and difficulties that will result in the settlement of bankrupt estates, from permitting a portion of the creditors to stand out of court, and prevent the property from being sold by the assignee, I am obliged to conclude, that they have no such right. The act of Congress does not give it in direct terms, and I cannot allow it upon precedents and arguments which I consider inapplicable. Simon, J. For the reasons adduced by Judge Garlanb, in the opinion which he has just delivered, I adopt the conclusion to which he has arrived, on the important question submitted to our deliberation. Martin, J. being interested in the question, did not sit on — 39 — the trial of this case ; and Morphy, J. concurred with the majority of the court.