Conrad v. Prieur

Morphy, J. This was an application to the Parish Court of New Orleans by F. B. Conrad, assignee of Thomas Banks, for a mandamus commanding the Recorder of Mortgages of the parish of Orleans, to raise certain mortgages on property of the bankrupt sold by the assignee, in order to give an unincumbered title to the purchasers. The petitioner represents, that amongst the surrendered property there were sundry valuable tracts of land which had been mortgaged by the bankrupt; that at the request of the first mortgagees on said property, he applied to the United States District Court for the Eastern District, sitting in bankruptcy, for an order authorizing the sale of the mortgaged premises, and decreeing the erasure of the mortgages recorded against them; that all the mortgagees holding liens upon the property were thereupon duly cited to oppose this application, if they saw fit so to do; that no opposition having been filed, a judgment supervened, decreeing the erasure of the mortgages, the sale of the property by the Marshal of the United States for this District, and the reservation to all interested parties, of their respective rights to the proceeds of the sale, when effected; that a sale having taken place under this decree, the assignee presented to the Recorder of Mortgages a copy of the judgment of the United States Court, and required him to erase the mortgages according to its te,nor, and to deliver to him a certificate showing the property to be free from all incumbrances, but that officer refused so to do, alleging that the judgment was invalid and of no legal force, or effect. After hearing the parties, the inferior Judge — 51 — ordered the mandamus to issue, whereupon the Recorder of Mortgages appealed. The only question which this case presents is one of jurisdiction ; for if the District Court sitting in bankruptcy was competent to cite in the mortgage creditors, and make an order for the erasure of their mortgages', we cannot review its decision, or inquire into its correctness. It had occurred to me, that as the District Court has assumed jurisdiction, and has full authority to compel obedience to its decrees, the Judge below should perhaps have refused to interfere ; but, upon further reflection, I believe that a State court should not withhold the expression of its opinion, when it is legally called for by a State officer, either on his own account, if he wishes to shelter himself from responsibility, or at the instance of purchasers entertaining, as in this case, fears as to the security of their titles, by reason of the supposed want of jurisdiction in the court which ordered the sale. Besides, the Judge below, being of opinion that the District Court of the United States had jurisdiction over the subject matter, may well have considered it incumbent on him to compel the Recorder of Mortgages to fulfil an official duty by means of a mandamus, although the same result could perhaps have been obtained, by application to that court to enforce its decree. As to' the parties holding these mortgages, they have already been cited in the United States Court, and have had an opportunity of urging their objections, if they had any, to the erasure of their mortgages, but they have made none. The question is not, whether this erasure has. been rightfully ordered, but whether the District Court was competent to order it, and whether it has consequently become an official duty, on the part of the Recorder of Mortgages, to do the act demanded of him by the appellee. The jurisdiction of the District Court, sitting in bankruptcy, is defined in the sixth and eighth sections of the bankrupt law. In the sixth section, it is declared, “ that the District Court, in every district, shall have jurisdiction in all matters and proceedings arising under this act,” “ the said jurisdiction to be exercised summarily, in the nature of summary proceedings, &c.“ and the jurisdiction hereby conferred on the District Court, shall extend to all cases and controversies in bankruptcy, arising between — 52 — the bankrupt, and any creditor or creditors who shall claim any debt or demand under the bankruptcy ; to all cases and controversies between such creditors and the assignee of the estate, whether in office or removed ; to all cases and controversies between such assignee and the bankrupt; and to all acts matters and things to be done under, and in virtue of the bankruptcy, until the final distribution and settlement of the estate of the bankrupt, and the close of the proceedings in bankruptcy.” In the 8th section we find : “ that the Circuit Court within and for the district where the decree in bankruptcy is passed, shall have concurrent jurisdiction with the District Court of the same district, of all suits at law and in equity, which may and shall be brought, by any assignee-of the bankrupt, against any person or persons claiming an adverse interest, ox> by such person against the assignee, touching any properly or rights of property of said bankrupt, transferrable to, or vested in, sixch assignee.” The powers given by the first of these two sections appear sufficiently broad to enable that court to do any act which may become absolutely necessary for the settlement of estates thrown into bankruptcy ; and the 8th section clothes it with power to decide suits brought by an assignee of the bankrupt, against any person claiming an adverse interest, or by such person against sugIx assignee, touching property, or rights of property of said bankrupt transferrable to, or vested in such assignee. If it is shown, that the erasure of the mortgages on the property surrendered, is absolutely necessary to settle a bankrupt’s estate in Louisiana, and to do justice to the creditors claiming under the bankruptcy, and that the interests of persons holding such mortgages is an adverse interest touching property vested in the assignee, it will follow that, independent of any other provision of the bankrupt law, these two sections vest in the District Court, the jurisdiction it thought proper to exercise, It seems to be conceded, that the District Court of the United States is not without jurisdiction ratione materias, when creditors holding mortgages, or other liens, pome in voluntarily, and make themselves parties to the proceedings ; but it is urged, that they are not bound by the bankruptcy ; that they can stand out of it if they choose, and pursue their remedy without reference to such proceedings. An essential difference is believed to exist between — 53 — the bankrupt law of England and ours. There, it is exclusively a forced proceeding; the voluntary clause is unknown to it; the bankrupt is not required, as he is, under our law, to make a surrender of all his property to the court, for the benefit of all his creditors ; no one is in the bankruptcy who does not elect to go there and receive a dividend. If a creditor chooses, he may keep aloof, and retain his remedy in the courts of law. Here, every creditor seems to be made, by the law itself, a party to the bankruptcy ; all are cited, and there is an issue joined between them and the bankrupt, who, in consideration of the surrender, sues them for his discharge. But admitting that this right of election may be implied from the terms of the bankrupt law, and that it is exercised without much inconvenience or difficulty in the other states of the Union ; yet its exercise in this State, by reason of the peculiar nature of the liens and mortgages, as constituted by our law, is deemed inconsistent with the rights of the mass of the creditors, and destructive of most of the liens and securities intended to be protected, by the last proviso of the second section of the' act of Congress. According to our laws, both the possession and the title of property subject to mortgages, whether conventional, legal, or judicial, remain in the debtor, and the creditors holding these several mortgages, are to be paid according to the dates of the registry of their liens in the office of the Recorder of Mortgages, or according to the date of the acts which give rise to a legal mortgage. Of these three kinds of mortgages, two of them, the judicial and the legal, are general, and affect each and every piece of immoveable property owned by the debtor. If the latter sells any por tion of his property, it passes into the hands of the purchaser subject to the amount of the mortgages recorded against the former owner, and the mortgagee can, by a hypothecary action, have the property seized and sold in the hands of the purchaser, unless the latter chooses to free the property by paying the debt. A mortgage, moreover, is, under our law, only an accessary to the principal obligation, and the extinction of the debt carries with it that of the mortgage. Civil Code, Book III, Title 22. As relates to the privileges recognized by our laws, they are most of them allowed only in view of insolvency, and can be exercised — 54 — only on the proceeds of the property surrendered by a debtor. These privileges are of different grades and descriptions ; some are general, others are special; some affect only the moveables of the debtor, some only the immoveables; and some extend to both moveables and immoveables. From the very nature of these liens and privileges, they can be enforced and settled only in a concurso, that is, contradictorily between the several creditors entitled to them. Keeping in view these outlines of our system of mortgages and privileges, let us inquire if the doctrine of election is not wholly inconsistent with it, and would not present an insuperable obstacle to the settlement of a bankrupt’s estate in Louisiana. The act of Congress makes- it the duty of the bankrupt, under the penalty of not obtaining his discharge, to place upon his schedule or inventory, all his property without any exception ; and from the date of the decree of bankruptcy, all such property is divested out of the bankrupt, and by force of the same decree, is vested in the assignee appointed by the court. All the property then mortgaged, or subject to privileges, becomes a part of the bankrupt’s estate, to be disposed of at such times, and in such manner as may be ordered by the court sitting in bankruptcy, (sec. 9, of the Bankrupt Law); while in England and in the other States of the Union, the equity or right of redemption alone, passes to, and vests in, the assignee. It is true, that according to the equity doctrine, the common law mortgage is considered a mere security for the debt, and only a chattel interest; yet it is a transfer of the property itself, as security for the debt, and a bill in equity is the only remedy of the mortgagor, after payment of the debt, if the mortgagee, having entered, upon the condition being broken, refuses to relinquish the possession. 17 Mass. Rep. 419. 3 lb. 560. It has been remarked by the appellant’s counsel, that though, in form, this contract at common law is a sale, it is, in substance, nothing else than a mortgage ; but it is that very form which makes all the difference, by vesting the legal title in the mortgagee. This mortgage has some analogy to the contract of sale, with a right of redemption, which is sometimes made in this State, by way of security for the loan of money to be returned within a given lime. This contract is also in substance a mort — 55 — gage ; but being in the form of a sale, the property could not be carried into the bankruptcy against the will of the vendee, nothing but the mere right of redemption being transferred to the assignee ; hence, it is necessary for the latter to redeem the property, in order to bring it back into the bankrupt’s estate, If he does not, the mortgagee, or vendee under a clause of redemption, has nothing to do with the bankruptcy, and may keep out of it. “ Thus,” says Blackstone, in his Commentaries, 2d vol. p. 487, “ mortgages for which the creditor has a real security in his hands, are entirely safe, for the commission of bankrupt reaches only the equity of redemption. So are also personal debts, when the creditor has a chattel in his hands, as a pledge or pawn for the payment, or has taken the debtor’s lands, or goods in execution.” Under such circumstances, I can well understand, that the right of election may exist, but where, as in this State, the mortgaged property itself goes into the bankruptcy, it appears to me, that the creditors can have no election, but must follow their pledge, and seek their payment out of its proceeds. From the nature of our general mortgages,,and the conflicting privileges existing under our laws, upon an estate surrendered by a bankrupt, it must be obvious to every one, that no settlement can take place, unless the whole estate is reduced to cash ; and that this result cannot be obtained, until the property is released from all the incumbrances bearing upon it. All persons, then, holding such mortgages may well be considered, within the meaning of the eighth section, as having an adverse interest touching the property vested in the assignee. They have th ejus in re, which Pothier tells us, in his treatise Du Droit de Domaine de Propriété, is the right which we have in a thing, by which it belongs to us, at least for certain purposes, (au moins á certains égards,) — vol. viii. chap. 1, No. 1, p. 111. “Up a,” says he, “ plusieurs especes de jus in re, qu'on appelle aussi droits réels. La principóle est le droit de domaine de propriété. Les autres especes de droits réels, qui émanent de celui-ci, et qui en sont comme des démembremens,” fyc. Among such proprietary rights, he mentions the right of mortgage. Pothier, loco citato, No. 2. This right which the mortgagees have in the property vested in the assignee, is evidenced under our law by an inscription, or — 56 — registry on the books of the Recorder of Mortgages, which, unless erased, would prevent the sale of the bankrupt’s property, and, consequently, the settlement of the estate. It constitutes, therefore, to my view, such an adverse interest as is contemplated by the eighth section of the law, and upon which the assignee was authorized to bring suit. This section, and the sixth, were clearly intended to clothe the District Court, sitting in bankruptcy, with all the powers necessary to effect a final settlement and liquidation of the affairs of the bankrupt. Upon the whole, I have come to the conclusion that the District Court of the United States acted within the scope of its jurisdiction, and had full authority to make the order, which it did, to the Recorder of Mortgages, and that the latter, in the performance of his official duties, was bound to obey such order, and erase the mortgage in question. In corroboration of this view of the subject, the counsel for the assignee has called our attention to the last proviso of the second section of the bankrupt act. It is in these words : “ 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 inconsistent with the provisions of the 2d and 5th sections of this act.” It is said, that although this proviso is general in its terms, it was inserted at'the instance of the Louisiana delegation in Congress, in view of the difficulties which would inevitably have attended the operation of the bankrupt law in this State, in consequence of the peculiar character of our privileges and mortgages. Its express object, it is contended, was to secure to the persons therein mentioned, and others similarly situated in Louisiana, the right of being paid out of the proceeds of the property subject to their privileges and mortgages, as they were under the State law, and therefore, to authorize every thing which was necessary to attain that end. Such appears to have been the construction given to this proviso of the law, by the United States District Court in this District. Its rules and regulations have been made in accordance with this construction. Mortgaged property, to an immense amount, has been sold under it, and the rights of the privileged and mortgage creditors have been allowed and — 57 — recognized to exist, as they stood under the State law. In con elusion, I must say, that even if I had any doubt on the subjects I would not put upon the act of Congress a different construction from that given to it by the District Court, whose' decision is final, In relation to the mutual respect, which, in my opinion,- the Federal and State courts should show for the decisions of each other, the Supreme Court of the United States have said: “ the judicial department of every government, where such department exists, is the appropriate organ for construing the legislative acts of that government. Hence, the construction given by this court to the constitution and laws of the United States, is received by all as the true constructionand hence, the construction given by the courts of the several States to the Legislative acts.pf those States, is received by us as true, unless they come in conflict with the constitution, laws, and treaties of the United States.” 10 Wheaton, 160. See also 16 Johnson, 248. 17 ibid, 108,