Factors' & Traders' Ins. Co. v. Murphy,
111 U.S. 738 (1884)

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U.S. Supreme Court

Factors' & Traders' Ins. Co. v. Murphy, 111 U.S. 738 (1884)

Factors' & Traders' Insurance Company v. Murphy

Submitted April 18, 1884

Decided May 5, 1884

111 U.S. 738


This Court has jurisdiction in error over a judgment of the Supreme Court of Louisiana in a suit by one citizen of that state against another for the foreclosure of a mortgage on real estate therein when the only controversy in the case is as to the effect to be given to a sale of the property under an order of the district court of the United States in bankruptcy to sell the bankrupt's mortgaged property free from encumbrances.

When a mortgagee of real estate becomes owner of the equity of redemption, a court of equity will not regard the mortgage as merged by unity of possession if it was the evident intent that the two titles should be kept distinct

Page 111 U. S. 739

or if the purchaser has such an interest in keeping them distinct that this intent can be inferred.

A sale of real estate of a bankrupt by order of court free from the lien of a mortgage creditor is invalid as to the creditor and as to the purpose of discharging his lien unless he is made a party to the proceedings. Ray v. Norseworthy, 23 Wall. 128, affirmed.

In such case, it is not sufficient to notify the person who holds the evidences of his debt and claims to be his agent if the record represents that person as acting for another party and makes no mention of the mortgage creditor.

The real estate of a bankrupt was sold by order of court free of encumbrances and purchased by A. One of the mortgages on the estate was given to secure four notes of which at the time of the sale A held two, and B held two. A and other mortgage creditors were made parties to the proceedings, but B was not made party. C held B's notes and claimed to represent him in the proceedings, but the record only showed C as acting for D. B brought suit to foreclose the mortgage as to his two notes, claiming that as to A's notes the lien was cut off by the purchase of the equity, and as to the rest of mortgage liens as well as to A's they were discharged by the sale. Held (1) that B had the right to a decree of foreclosure. (2) That this decree should be made for the benefit of all the mortgage creditors in the order of their priority, including A. (3) That the expenses of A for taxes, prior liens, improvements &c., growing out of the former sale should be first paid out of the proceeds of the new sale. (4) That A should account for rents and profits if there were any.

This suit was originally brought by the widow Mary Murphy, in the Fifth District Court of the Parish of Orleans, to foreclose a mortgage upon real estate in Louisiana, which had been the property of a bankrupt, and had been sold by order of the district court of the District of Louisiana free from encumbrances, and purchased by a holder of notes secured by the same mortgage. The facts which raise the federal question are stated in the opinion of the court. The supreme court of the state, to which the case came on appeal, decreed a sale of the mortgaged property to satisfy Mrs. Murphy's debt and interest. This writ of error was sued out to review that judgment.

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