This Court has no revising power over the decrees of the
district court sitting in bankruptcy; nor is it authorized to issue
a writ of prohibition to it in any case except where the district
court is proceeding as a court of admiralty and maritime
jurisdiction.
The district court, when sitting in bankruptcy, has jurisdiction
over liens and mortgages existing upon the property of a bankrupt,
so as to inquire into their validity and extent, and grant the same
relief which the state courts might or ought to grant.
The control of the district court over proceedings in the state
courts upon such liens is exercised not over the state courts
themselves, but upon the parties, through an injunction or other
appropriate proceeding in equity.
Page 44 U. S. 293
The design of the Bankrupt Act was to secure a prompt and
effectual administration of the estate of all bankrupts worked out
by the courts of the United States without the assistance of state
tribunals.
The phrase in the 6th section "any creditor or creditors who
shall claim any debt or demand under the bankruptcy," does not mean
only such creditors who come in and prove their debts, but all
creditors who have a present subsisting claim upon the bankrupt's
estate, whether they have a security or mortgage therefor or
not.
Such creditors have a right to ask that the property mortgaged
shall be sold, and the proceeds applied towards the payment of
their debts, and the assignee, on the other hand, may contest their
claims.
In the case of a contested claim, the district court has
jurisdiction, if resort be had to a formal bill in equity or other
plenary proceeding, and also jurisdiction to proceed summarily.
The suggestion for the prohibition stated the following as facts
in the case:
"First. That Daniel T. Walden, of the City of New Orleans, on 27
July, 1839, and on 17 August, 1839, executed two several mortgages
to the City Bank of New Orleans, on a certain plantation, and on
lots of land in said state, to secure payment of $200,000 borrowed
of said bank; which mortgages were duly recorded, and in all
respects good and valid, and created a good, legal, and equitable
lien on the property mortgaged for payment of said debt. That on or
about 20 October, 1840, Walden instituted suit in the state
district court, to set aside said mortgages, for the same causes,
substantially, as William Christy (Walden's subsequent assignee in
bankruptcy) has presented by his petition and amended petition in
the district court of the United States at New Orleans, exercising
summary jurisdiction in bankruptcy, to set aside the same
mortgages, as per certified copy of the proceedings in the district
court of the United States herewith annexed, and the state court,
on appeal, decided finally against Walden's complaint, and
sustained the mortgages."
"Second. That afterward the bank proceeded to foreclose its
mortgages in the state court, and thereupon, on 17 May, 1842, an
order of seizure and sale was made, and an actual seizure of the
property executed on 19 May, 1842."
"Third. That on 18 June, 1842, the said Walden filed his
petition for the benefit of the Bankrupt Act, in the District Court
of the United States at New Orleans, and on 18h July, 1842, said
court decreed him to be a bankrupt."
"Fourth. That after Walden filed his petition and before decreed
a bankrupt,
viz., on 27 June, 1842, he applied to the said
district court of the United States for its injunction to stay the
sale ordered in the state court of the mortgaged premises, setting
forth as grounds therefor the same facts, substantially, as
subsequently again
Page 44 U. S. 294
set forth by Christy, his assignee, in his petitions aforesaid.
After full hearing of said bill, the court refused the injunction,
and thereafter the premises seized were duly sold, with every legal
requisite and formality, in execution of the previous orders of the
state court, and the City Bank became the purchasers."
"Fifth. That the said bank has in no wise presented or proved
its claim against Walden in the bankrupt court, but pursued the
said mortgage claim adversely in the state court, relying on its
lien by the state law, and the proviso in the Bankrupt Act, saving
such lien from its operation."
"Sixth. That the matter in dispute exceeds two thousand dollars
in value."
"Seventh. That the said Christy, assignee &c., knowing all
the premises, but contriving to impair the lien of the bank by the
mortgages aforesaid, contrary to the saving clause of the Bankrupt
Act, is endeavoring, by his petition and supplemented petition, to
subject all the previous proceedings of the state court upon the
mortgages to review and revision in the district court of the
United States, by its summary process in bankruptcy. And the said
Christy and Walden, and the Hon. Theodore H. McCALEB, judge of the
said district court of the United States, have wrongfully and
vexatiously forced the said bank to appear in said court, upon its
summary process, to answer said Christy's petition. And though the
bank has objected, by plea, to the summary jurisdiction of the
court over the matters aforesaid, yet the court adheres -- hath
overruled the plea -- and persists, by its summary process, to
proceed with the cause, to the embarrassment of the bank, and to
the deprivation of all redress by appeal."
In addition to the foregoing statement filed by the counsel in
support of the motion for a prohibition, it may be proper to state
that:
On 8 October, 1842, Christy filed the petition mentioned in the
seventh proposition just quoted. It recited that Walden, the
bankrupt, was, at the time of filing his schedule and surrender,
the owner of a large amount of real estate; that the bank claimed
to have a mortgage upon it; that the bank caused it to be sold and
possession delivered; that the sale was void, because the
application of Walden operates as a stay of proceeding; that the
property was offered for sale in block, though composed of twenty
different stores or buildings, and for cash; that the mortgage debt
was not justly due, but void on account of usury; and prayed that
the sale might be declared void, or if adjudged valid, that the
amount thereof should be paid over to the petitioner, to be
distributed according to law.
On 31 October, 1842, the bank filed a plea to the jurisdiction
of the court, with other matters in defense.
On 17 February, 1843, the questions raised by the answer of the
bank were adjourned to the circuit court of the United States.
Page 44 U. S. 295
At April term, 1843, the circuit court returned the following
answers:
"In answer to the questions adjourned into this Court by the
district court for the said district, it is ordered that the
following answers be certified to the district court in bankruptcy,
as the opinion of the court thereupon: "
"First. That the said district court has, under the statute of
bankruptcy, full and ample jurisdiction of all questions arising
under the petition of William Christy, assignee of Walden, to try,
adjudge, decree, and determine the same between the parties
thereto."
"Secondly. That the sale made of the mortgaged property, under
the seizure and sale ordered by the District Court of the State of
Louisiana, is void, and that district court of the United States
should by its decree declare it void in the suit, and that said
last-mentioned court has full power and authority to try and
determine the validity of said mortgages, and if proved upon the
trial void according to the laws of Louisiana, to make a decree
accordingly, and order a sale of the property therein contained for
the benefit of the several creditors of the bankrupt; but if upon
proof said mortgages shall be sustained and adjudged valid, a
decree should be rendered in favor of the mortgagees, condemning to
sale all their interests, rights, all title therein, and all the
interest, right, and title of the bankrupt and all the general
creditors, in the hands of the assignee, and the rights and title
of the assignee also; and by the order of sale the marshal be
directed to pay over to the mortgagees, after deducting the percent
for his commissions and all the legal costs of the suit, the amount
of their claim, if the proceeds of the sale amount to so much, and
the balance, if any, to pay over to the assignee, and that by such
decree the assignee be ordered to make proper title and conveyance
to the purchaser or purchasers, upon the full payment of the
purchase money and a reasonable compensation to the assignee for
making such conveyance, to be determined and settled by the judge
of the district court, should the purchaser or purchasers and the
assignee disagree as to the amount."
"Thirdly. The second and alternative prayer in the petition of
the assignee, asking the payment to him of the whole amount of the
proceeds of the former sale of the mortgaged property, being
inconsistent with the opinion of the court in the second point,
will therefore be disregarded on the trial by the district
court."
"J. McKINLEY"
"Associate Justice of the Supreme Court U.S."
Afterwards, in 1843, an amended petition was filed by Christy
alleging, amongst other things, that the bank claimed to be a
creditor of Walden, and "in that capacity had become a party to the
said proceedings in bankruptcy," &c.
In December, 1843, the bank prayed oyer of the time, place,
Page 44 U. S. 296
manner, and form, where, how and when it became a party to the
proceedings in bankruptcy.
The court having granted the prayer for oyer, Christy, on the
23d of January, 1844, filed the following:
"That the said City Bank became parties to the proceedings in
bankruptcy of the said Walden, first, by the operation of law, they
being at the time of his bankruptcy mortgage creditors of the said
Walden, and placed upon his schedule as such; second, by their own
act, having filed a petition in this Honorable Court on 5
September, 1842, praying that the demand of the assignee for the
postponement of the sale of certain properties be disregarded, that
their privileges be recognized, and that said properties be sold
under an order of this Court for cash; third, that an attempt was
made by the said bank to withdraw said petition and prayer of 5
September, 1842, but a discontinuance of the same was opposed by M.
W. Hoffman and L. C. Duncan, creditors of said bankrupt, and
parties interested, by reason of which said opposition the legal
effects of said application, made by the City Bank as aforesaid, to
this Honorable Court remain in full force."
"In consideration of all which and the documents herewith filed,
your petitioner prays, that said City Bank be compelled to answer
to the merits of the original and supplemental petition in this
case filed, without further delay."
On 10 February, 1844, the bank filed its answer denying that it
had ever proved its debt, or otherwise subjected itself in any
manner to the summary jurisdiction of the district court sitting as
a court of bankruptcy, but on the contrary, that it had prosecuted
its remedy in the state courts of Louisiana, and adding the
following:
"And so these respondents and defendants say and insist that
this Honorable Court, sitting as a bankrupt court, and holding
summary jurisdiction in matters of bankruptcy under and by virtue
of said act, ought not to have and to take cognizance of the
several matters and things in the said petition and supplemental
petition contained, forasmuch as all jurisdiction over the same is
by law vested in and does of right belong to the Circuit Court of
the United States for the Eastern District of Louisiana, holding
jurisdiction in equity, and proceeding according to the principles
and forms of courts of chancery as prescribed by law and by rules
and orders of the Supreme Court of the United States, or to the
District Court of the United States for the said district,
proceeding in the same manner, and vested with concurrent
jurisdiction over all suits at law or in equity which may be
brought by the assignee of any bankrupt against any person claiming
an adverse interest; which said courts are competent to entertain
the suit of the petitioner and grant him the relief of prayer for,
if by law he is entitled to the same, and not this Court, and
forasmuch as this Honorable Court, sitting as a bankrupt court, and
deciding in a summary manner in matters of bankruptcy, is
wholly
Page 44 U. S. 297
without jurisdiction in the premises, these respondents and
defendants submit to the judgment of this Honorable Court, whether
they shall be held to make any further or other answer to the
several matters and things in the said petition and supplemental
petition contained, and pray to be hence dismissed, with their
reasonable costs, &c."
An agreement of counsel was filed in the court below relative to
the petition of the bank and its discontinuance spoken of in the
oyer of Christy, as above set forth. The agreement stated that the
discontinuance was ordered in open court by the counsel of the
bank, and the proceedings of the court showed that a rule to show
cause why the discontinuance should not be set aside was
dismissed.
This was the position of the case in the court below.
Page 44 U. S. 308
MR. JUSTICE STORY delivered the opinion of the Court.
This is the case of an application on behalf of the City Bank of
New Orleans to this Court for a prohibition to be issued to the
District Court of the United States for the District of Louisiana,
to prohibit it from further proceedings in a certain case in
bankruptcy pending in the said court upon the petition of William
Christy, assignee of Daniel T. Walden, a bankrupt. The suggestions
for the writ state at large the whole proceedings before the
district court, and contain allegations of some other facts, which
either do not appear at all upon the face of those proceedings, or
qualify or contradict some of the statements contained therein. So
far as respects these allegations of facts, not so found in the
proceedings of the district court, we are not upon the present
occasion at liberty to entertain any consideration thereof for the
purpose of examination or decision, as it would be an exercise of
original jurisdiction on the part of this Court not confided to us
by law. The application for the prohibition is made upon the ground
that the district court has transcended its jurisdiction in
entertaining those proceedings, and whether it has or not must
depend, not upon facts stated
dehors the record, but upon
those stated in the record, upon which the district court was
called to act, and by which alone it could regulate its judgment.
Other matters, whether going to oust the jurisdiction of the court,
or to establish the want of merits in the case of the plaintiff,
constitute properly a defense to the suit, to be propounded for the
consideration of the district court by suitable pleadings,
supported by suitable
Page 44 U. S. 309
proofs, and cannot be admitted here to displace the right of the
district court to entertain the suit.
Let us then see what is the nature of the case originally
presented to the district court. It is founded upon a petition of
William Christy, as assignee of Daniel T. Walden, a bankrupt, in
which he states, that the bankrupt, at the time of his filing his
schedule of property and surrendering it to his creditors, was in
possession of a large amount of real estate, described in the
petition, situate in the City of New Orleans, which was to be
administered and disposed of in bankruptcy, the bankrupt having
applied to the court for the benefit of the Bankrupt Act. It
further states that the City Bank of New Orleans, claiming to be a
creditor of the bankrupt and to have a mortgage on the aforesaid
property, the said corporation being a schedule creditor, being a
party to the proceedings in bankruptcy, and being fully aware of
the pendency of the same proceedings, did proceed to the seizure of
the said property, and did prosecute the said seizure to a sale of
the same property, the same being put up and offered for sale at
public auction by the sheriff of the state district court, on or
about 27 June, 1842, and it was by the said sheriff declared to be
struck off to the said City Bank, notwithstanding the remonstrances
of the said assignee and his demands to have the same delivered up
to him for the benefit of all the creditors of the bankrupt. It
further avers that the same property was illegally offered for
sale, and that it is itself a nullity, and conferred no title on
the said City Bank; that the sale was a fraud upon the Bankrupt
Act; that the City Bank attempted thereby to obtain an illegal
preference and priority over the other creditors of the bankrupt,
and that the property was sold at two-thirds only of its estimated
value; that the City Bank had never delegated to any person the
authority to bid off the same to the said bank at the sale, and
that the previous formalities required by law for the sale were not
complied with, and that the property had been illegally advertised
and appraised. It further avers that the bankrupt, long prior to
his bankruptcy, was contesting the debt claimed by the said bank,
and contending that the said debt was not owing by him, and the
said property was not bound thereby. It further avers that the said
debt is void for usury on the part of the said bank in making the
loan, the same not having been made in money, but that it was
received as at par in bonds of the Municipality No. 2, which were
then at depreciation at from twenty to twenty-five percent, at
their real current market value; and that the said bank had no
authority to make the said contract or to accept or execute the
mortgage given by the bankrupt, and that the contract and mortgage
are utterly void, and should be so decreed by the court.
The prayer of the petition is that the sheriff's adjudication of
the said property may be declared null and void, and that the said
property may be adjudged to form part of the bankruptcy and given
up
Page 44 U. S. 310
to the petitioner to be by him administered and disposed of in
the said bankruptcy and according to law; that the said debt and
mortgage may be decreed to be null and void, and the estate of the
said bankrupt discharged from the payment thereof, and that if the
said adjudication shall be held valid, and the debt and mortgage
maintained by the court, then that the amount of the said
adjudication may be ordered to be paid over by the said bank to the
petitioner, to be accounted for and distributed by him according to
law in the course of the settlement of the bankrupt's estate, and
for all general and equitable relief in the premises.
To this petition the bank, by way of answer, pleaded various
pleas:
(1) That the district court had no jurisdiction to decide upon
the premises in the petition;
(2) That the subject had already become
res judicata in
two suits of
D. T. Walden v. City Bank, and
The City
Bank v. D. T. Walden, in the state courts, and by the district
court upon the petition of D. T. Walden for an injunction (not
stating the nature or subject matters of such suits, so as to
ascertain the exact matters therein in controversy);
(3) That the petition contained inconsistent demands,
viz.: that the sale be set aside, and that the proceeds of
the sale be decreed to the petitioner; and
(4) That the mortgages to the bank were valid upon adequate
considerations; that the order of seizure and sale were duly
granted, and the sale duly made with all legal formalities, and the
property adjudicated to the bank; that the price of the
adjudication was retained by the bank to satisfy the said
mortgages, and that the bank became and were the lawful owners of
the property. The pleas concluded with a denial of all the
allegations in the petition, and prayed that the issues in fact
involved in the petition by tried by a jury. It is unnecessary for
us to consider whether such a mode of pleading is allowable in any
proceedings in equity, whether they are summary or plenary.
Upon this state of the pleadings, the petitioner took exceptions
to the answer of the bank, and three questions were adjourned into
the circuit court for its decision. To these questions the circuit
court returned the following answers. (
See them quoted in
the statement of the reporter.)
Subsequently the assignee filed a supplemental or amended
petition in the district court, stating the matters contained in
the original petition more fully and at large, with more precise
averments, and mainly relying thereon; and alleging, among other
things, that the City Bank became a party to the proceedings in
bankruptcy; and by a subsequent amendment or supplemental
allegation the assignee averred that the bank became a party to the
proceedings in bankruptcy, first, by operation of law, the bank
being at the time of the bankruptcy mortgage creditors of the
bankrupt and named in his schedule; secondly, by their own act,
having filed a petition in the court, in September, 1842, praying
that the demand of the assignee
Page 44 U. S. 311
for the postponement of the sale of certain property be
disregarded, that their privileges be recognized, and that the
property be sold under an order of the court for cash; and that the
court had since refused leave to the bank to withdraw and
discontinue the latter application and petition.
To the supplemental and amended petition the bank put in an
answer or plea, denying the jurisdiction of the district court to
take cognizance thereof, and insisting that they had never proved
their debt in bankruptcy, but had prosecuted their remedy in the
state courts against the mortgaged property, relying upon their
mortgage as a lien wholly exempted from the operation of the
bankruptcy by the express terms of the Bankrupt Act; that the
district court, sitting as a bankrupt court, and holding summary
jurisdiction in matters of bankruptcy under the act of Congress,
ought not to take cognizance of the petition and supplemental
petition, inasmuch as all jurisdiction over the premises is by law
vested in and of right belongs to the Circuit Court of the United
States for the Eastern District of Louisiana, holding jurisdiction
in equity, and proceeding according to the forms and principles of
chancery as prescribed by law, or to the district court of the
United States, proceeding in the same manner, and vested with
concurrent jurisdiction over all suits at law or in equity brought
by an assignee against any person claiming an adverse interest,
which courts are competent to entertain the suit of the petitioner
and grant him the relief prayed for, if by law entitled to the
same, and not this Court, and the bank, therefore, prayed the said
petition and supplemental petition to be dismissed for want of
jurisdiction.
The district court affirmed its jurisdiction, considering that
the matters of the plea had been already determined by the decree
of the circuit court already referred to, and overruled the plea,
and ordered the bank to answer to the merits of the cause.
It is at this stage of the proceedings, so far as the record
before us enables us to see, that the motion for the prohibition
has been brought before this Court for consideration and decision.
Upon the argument the principal questions which have been discussed
are, first, what is the true nature and extent of the jurisdiction
of the district court sitting in bankruptcy?; secondly, whether if
the district court has exceeded its jurisdiction in the present
case, a writ of prohibition lies from this Court to that court to
stay farther proceedings? Each of these questions is of great
importance, and the first in an especial manner having given rise
to some diversity of opinion in the different circuits, and lying
at the foundation of all the proceedings in bankruptcy, is
essential to be decided in order to a safe and just administration
of justice under the Bankrupt Act.
In the first place, then, as to the jurisdiction of the district
court in matters of bankruptcy. Independent of the Bankrupt Act of
1841, ch. 9, the district courts of the United States possess
no
Page 44 U. S. 312
equity jurisdiction whatsoever; for the previous legislation of
Congress conferred no such authority upon them. Whatever
jurisdiction, therefore, they now possess is wholly derived from
that act. And, as we shall presently see, the jurisdiction thus
conferred is to be exercised by that court summarily in the nature
of summary proceedings in equity.
The obvious design of the Bankrupt Act of 1841, chap. 9, was to
secure a prompt and effectual administration and settlement of the
estate of all bankrupts within a limited period. For this purpose
it was indispensable that an entire system adequate to that end
should be provided by Congress, capable of being worked out through
the instrumentality of its own courts, independently of all aid and
assistance from any other tribunals over which it could exercise no
effectual control. The 10th section of the act declares that in
order to ensure a speedy settlement and close of the proceedings in
each case in bankruptcy, it shall be the duty of the court to order
and direct a collection of the assets, and a reduction of the same
to money, and a distribution thereof at as early periods as
practicable, consistently with a due regard to the interests of the
creditors, and that such distribution of the assets, so far as can
be done consistently with the rights of third persons having
adverse claims thereto, shall be made as often as once in six
months; and that all the proceedings in bankruptcy in each case, if
practicable, shall be finally adjusted, settled, and brought to a
close by the court, within two years after the decree declaring the
bankruptcy. By another section of the act (§ 3), the assignee is
vested with all the rights, titles, powers, and authorities, to
sell, manage, and dispose of the estate and property of the
bankrupt, of every name and nature, and to sue for and defend the
same, subject to the orders and directions of the court, as fully
as the bankrupt might before his bankruptcy. By another section (§
9), all sales, transfers, and other conveyances of the bankrupt's
property, and rights of property, are required to be made by the
assignee at such times and in such manner as shall be ordered and
appointed by the court in bankruptcy. By another section (§ 11),
the assignee is clothed with 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, and to tender a due performance
thereof, and to compound any debts or other claims or securities
due or belonging to the estate of the bankrupt.
From this brief review of these enactments it is manifest that
the purposes so essential to the just operation of the bankrupt
system, could scarcely be accomplished except by clothing the
courts of the United States sitting in bankruptcy with the most
ample powers and jurisdiction to accomplish them; and it would be a
matter of extreme surprise if, when Congress had thus required the
end,
Page 44 U. S. 313
they should at the same time have withheld the means by which
alone it could be successfully reached. Accordingly we find that by
the 6th section of the act it is expressly provided,
"That the district court in every district shall have
jurisdiction in all matters and proceedings in bankruptcy arising
under this act, and any other act which may hereafter be passed on
the subject of bankruptcy, the said jurisdiction to be exercised
summarily in the nature of summary proceedings in equity, and for
this purpose the said district court shall be deemed always open.
And the district judge may adjourn any point or question arising in
any case in bankruptcy into the circuit court for the district, in
his discretion, to be there heard and determined, and for this
purpose the circuit court of such district shall also be deemed
always open."
If the section had stopped here, there could have been no
reasonable ground to doubt that it reached all cases where the
rights, claims, and property of the bankrupt, or those of his
assignee, are concerned, since they are matters arising under the
act, and are necessarily involved in the due administration and
settlement of the bankrupt's estate. In this respect, the language
of the act seems to have been borrowed from the language of the
Constitution, in which the judicial power is declared to extend to
cases arising under the Constitution, laws, or treaties of the
United States. But the section does not stop here, but in order to
avoid all doubt it goes on to enumerate certain specific classes of
cases to which the jurisdiction shall be deemed to extend, not by
way of limitation, but in explanation and illustration of the
generality of the preceding language. The section further
declares:
"And the jurisdiction hereby conferred on the district court
shall extend to all cases and controversies in bankruptcy arising
between the bankrupt and any creditor or creditors, who shall claim
any debt or demand under the bankruptcy; to all cases and
controversies between such creditor or creditors and the assignee
of the estate, whether in office or removed; 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."
This last clause is manifestly added in order to prevent the
force of any argument that the specific enumeration of the
particular classes of cases ought to be construed as excluding all
others not enumerated, upon the known maxim, often incorrectly
applied,
expressio unius est exclusio alterius. The 8th
section of the act further illustrates this subject. It is there
provided
"That the circuit court within and for the district where the
decree of 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, or by such person against such assignee touching any
property or rights of property of such bankrupt transferable to or
vested in such
Page 44 U. S. 314
assignee."
Now this clause certainly supposes either that the district
court, in virtue of the 6th section above cited, is already in full
possession of the jurisdiction in the class of cases here
mentioned, at least so far as they are of an equitable nature, and
then confers the like concurrent jurisdiction on the circuit court,
or it intends to confer on both courts a coextensive authority over
that very class of cases, and thereby demonstrates that Congress
did not intend to limit the jurisdiction of the district court to
the classes of cases specifically enumerated in the 6th section,
but to bring within its reach all adverse claims. Of course, in
whichever court such adverse suit should be first brought, that
would give such court full jurisdiction thereof, to the exclusion
of the other, but in no shape whatsoever can this clause be
construed otherwise to abridge the exclusive jurisdiction of the
district court over all other "matters and proceedings in
bankruptcy arising under the act," or over "all acts, and matters
and things to be done under and in virtue of the bankruptcy."
One ground urged in the declinatory plea of the bank to the
supplemental petition, and also in the argument here, is that the
district court would have had jurisdiction in equity over the
present case, if the suit had been by a formal bill and other
plenary proceedings according to the common course of such suits in
the circuit court, but that it has no right to sustain the suit in
its present from of a summary proceeding in equity. Now without
stopping to consider whether the petition of the assignee in the
present case is not in substance, and for all useful purposes, a
bill in equity, it is clear that the suggestion has no foundation
whatsoever in the language or objects of the 6th or 8th sections of
the Bankrupt Act. There is no provision in the former section
authorizing or requiring the district court to proceed in equity
otherwise than "summarily in the nature of summary proceedings in
equity," and that court is by the same section clothed with full
power and authority, and indeed it is made its duty, "from time to
time to prescribe suitable rules, and regulations, and forms of
proceedings, in all matters in bankruptcy," subject to the revision
of the circuit court, and it is added:
"And in all such rules, and regulations, and forms, it shall be
the duty of the said courts to make them as simple and brief as
practicable, to the end to avoid all unnecessary expenses, and to
facilitate the use thereof by 'the public at large.'"
If any inference is to be drawn from this language, it is, not
that the district court should in any case proceed by plenary
proceedings in equity in cases of bankruptcy, but that the circuit
court should, by the interposition of its revising power, aid in
the suppression of any such plenary proceedings if they should be
attempted therein. The manifest object of the act was to provide
speedy proceedings, and the ascertainment and adjustment of all
claims and rights in favor of or against the bankrupt's estate, in
the most expeditious manner,
Page 44 U. S. 315
consistent with justice and equity, without being retarded or
obstructed by formal proceedings, according to the general course
of equity practice, which had nothing to do with the merits.
Another ground of objection insisted on in the argument is that
the language of the 6th section, where it refers to "any creditor,
or creditors, who shall claim any debt or demand under the
bankruptcy," is exclusively limited to such creditors as come in
and prove their debts under the bankruptcy, and does not apply to
creditors who claim adversely thereto. If this argument were well
founded, it would be sufficient to say, that the case would then
fall within the concurrent jurisdiction given by the 8th section
already cited, and therefore not avail for the City Bank. But we do
not so interpret the language. When creditors are spoken of "who
claim a debt or demand under the bankruptcy," we understand the
meaning to be that they are creditors of the bankrupt, and that
their debts constitute present subsisting claims upon the
bankrupt's estate, unextinguished in fact or in law, and capable of
being asserted under the bankruptcy in any manner and form which
the creditors might elect, whether they have a security by way of
pledge or mortgage therefor or not. If they have a pledge or
mortgage therefor, they may apply to the court to have the same
sold and the proceeds thereof applied towards the payment of their
debts
pro tanto, and to prove for the residue; or, on the
other hand, the assignee may contest their claims in the court, or
seek to ascertain the true amount thereof, and have the residue of
the property, after satisfying their claims, applied for the
benefit of the other creditors. Still, the debts or demands are in
either view debts or demands under the bankruptcy, and they are
required by the Bankrupt Act to be included by the bankrupt in the
list of the debts due to his creditors when he applies for the
benefit of the act; so that there is nothing in the language or
intent of the 6th section to justify the conclusion which the
argument seeks to arrive at. The 5th section of the Bankrupt Act is
framed
diverso intuitu. It does not speak of creditors who
shall claim any debt or demand under the bankruptcy, but it uses
other qualifying language. The words are:
"All creditors coming the 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, &c., and no
creditor or other person coming in or proving his debt or other
claim, shall be allowed to 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."
But this provision by no means interferes with the right of any
creditor to proceed against the assignee under the bankruptcy to
have the benefit of any mortgage, pledge, or other security,
pro tanto for his debt, if he elects so to do, or with the
rights of the assignee to redeem the
Page 44 U. S. 316
same or otherwise to contest the validity of the debt or
security under the bankruptcy.
It is also suggested that the proviso of the 2d section of the
act declares,
"That nothing in this act 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 may not be inconsistent with the provisions
of the 2d and 5th sections of this act,"
and that thereby such liens, mortgages, and other securities are
saved from the operation of the Bankrupt Act, and by inference from
the jurisdiction of the district court. But we are of opinion that
the inference thus attempted to be drawn is not justified by the
premises. There is no doubt that the liens, mortgages, and other
securities within the purview of this proviso, as far as they are
valid by the state laws, are not to be annulled, destroyed, or
impaired under the proceedings in bankruptcy, but they are to be
held of equal obligation and validity in the courts of the United
States as they would be in the state courts. The district court,
sitting in bankruptcy, is bound to respect and protect them. But
this does not and cannot interfere with the jurisdiction and right
of the district court to inquire into and ascertain the validity
and extent of such liens, mortgages, and other securities, and to
grant the same remedial justice and relief to all the parties
interested therein as the state courts might or ought to grant. If
the argument has any force, it would go equally to establish that
no court of the United States, neither the circuit court nor the
district court, could entertain any jurisdiction over any such
cases, but that they exclusively belong to the jurisdiction of the
state courts. Such a conclusion would be at war with the whole
theory and practice under the judicial power given by the
Constitution and laws of the United States. The rights and the
remedies in such cases are entirely distinct. While the former are
to be fully recognized in all courts, the latter belong to the
lex fori, and are within the competency of the national
courts equally with the state courts.
Let us sift this argument a little more in detail. The 8th
section of the Bankrupt Act (as we have already seen) confers on
the circuit court concurrent jurisdiction with the district court
of all suits at law and in equity brought by the assignee against
any person claiming an adverse interest, and
e converso by
such person against the assignee. Now the argument at the bar
supposes that a creditor having any lien, mortgage, or other
security, falls within the category here described as having an
adverse interest. Assuming this to be true (on which we give no
opinion, and the clause certainly does include persons claiming by
titles paramount and not under the bankrupt), still it must be
brought by or against such 8th section, a bill in equity may be
brought by or against such creditor in the circuit court to redeem
or foreclose, or to enforce, or to set
Page 44 U. S. 317
aside such a lien, mortgage, or other security. If it can be,
then the lien, mortgage or other security is not saved from the
cognizance of the circuit court having jurisdiction in bankruptcy,
but the most ample remedies lie there, and although the rights of
such creditors are to be protected, they are subject to the entire
examination and decision of the court as much as they would be, if
brought before the court in the exercise of its ordinary
jurisdiction. If, then, the jurisdiction over such liens,
mortgages, and securities exists in the circuit court, it follows
from the very words of the Bankrupt Act, that the district court
has a concurrent jurisdiction to the same extent and with the same
powers.
But it is objected that the jurisdiction of the district court
is summary in equity and without appeal to any higher court. This
we readily admit. But this was a matter for the consideration of
Congress in framing the act. Congress possess the sole right to say
what shall be the forms of proceedings, either in equity or at law,
in the courts of the United States, and in what cases an appeal
shall be allowed or not. It is a matter of sound discretion, and to
be exercised by Congress in such a manner as shall in their
judgment best promote the public convenience and the true interests
of the citizens. Because the proceedings are to be in the nature of
summary proceedings in equity, it by no means follows that they are
not entirely consistent with the principles of justice and adapted
to promote the interest as well as the convenience of all suitors.
Because there is no appeal given, it by no means follows, that the
jurisdiction is either oppressive or dangerous. No appeal lies from
the judgments either of the district or circuit court in criminal
cases, and yet within the cognizance of one or both of those courts
are all crimes and offenses against the United States, from those
which are capital down to the lowest misdemeanors, affecting the
liberty and the property of the citizens. And yet there can be no
doubt that this denial of appellate jurisdiction is founded in a
wise protective public policy. The same reasoning would apply to
the appellate jurisdiction from the decrees and judgments of the
circuit court, which are limited to cases above $2,000, and cases
below that sum embrace a large proportion of the business of that
court.
But in the present instance, the public policy of confiding the
whole jurisdiction to the district court without appeal in ordinary
cases requires no elaborate argument for its vindication. The
district judges are presumed to be entirely competent to all the
duties imposed upon them by the Bankrupt Act. In cases of doubt or
difficulty, the judges have full authority given to them to adjourn
any questions into the circuit court for a final decision. That
very course was adopted in the present case. In the next place, in
one class of cases, that of adverse interests between the assignee
and third persons, either party is at liberty to institute original
proceedings in the circuit court, if a prior suit has not been
brought therefor
Page 44 U. S. 318
in the district court. So that here the act has afforded
effectual means to have the aid and assistance of the judge of the
circuit court, wherever it may seem to be either expedient or
necessary to solve any questions of importance or difficulty, and
it has also secured to parties having an adverse interest a right
at their election to proceed in the district or the circuit court
for any remedial justice which their case may require. On the other
hand, the avowed policy of the Bankrupt Act -- that of ensuring a
speedy administration and distribution of the bankrupt's effects --
would (as has been already suggested) be greatly retarded, if not
utterly defeated, by the delays necessarily incident to regular and
plenary proceedings in equity in the district court or by allowing
appeals from the district court to the circuit court in all matters
arising under the bankruptcy.
It is farther objected that if the jurisdiction of the district
court is as broad and comprehensive as the terms of the act justify
according to the interpretation here insisted on, it operates or
may operate to suspend or control all proceedings in the state
courts either then pending or thereafter to be brought by any
creditor or person having any adverse interest to enforce his
rights or obtain remedial redress against the bankrupt or his
assets after the bankruptcy. We entertain no doubt that, under the
provisions of the 6th section of the act, the district court does
possess full jurisdiction to suspend or control such proceedings in
the state courts, not by acting on the courts, over which it
possesses no authority, but by acting on the parties through the
instrumentality of an injunction or other remedial proceedings in
equity upon due application made by the assignee and a proper case
being laid before the court requiring such interference. Such a
course is very familiar in courts of chancery in cases where a
creditors' bill is filed for the administration of the estate of a
deceased person, and it becomes necessary or proper to take the
whole assets into the hands of the courts for the purpose of
collecting and marshaling the assets, ascertaining and adjusting
conflicting priorities and claims, and accomplishing a due and
equitable distribution among all the parties in interest in the
estate. Similar proceedings have been instituted in England in
cases of bankruptcy, and they were without doubt in the
contemplation of Congress as indispensable to the practical working
of the bankrupt system. But because the district court does possess
such a jurisdiction under the act, there is nothing in the act
which requires that it should in all cases be absolutely exercised.
On the contrary, where suits are pending in the state courts, and
there is nothing in them which requires the equitable interference
of the district court to prevent any mischief or wrong to other
creditors under the bankruptcy, or any waste or misapplication of
the assets, the parties may well be permitted to proceed in such
suits and consummate them by proper decrees and judgments,
especially where there is no suggestion of any fraud or injustice
on the part of the plaintiffs in those
Page 44 U. S. 319
suits. The act itself contemplates that such suits may be
prosecuted and further proceedings had in the state courts, for the
assignee is by the 3d section authorized to sue for and defend the
property vested in him under the bankruptcy,
"subject to the orders and directions of the district court, . .
. and all suits at law and in equity then pending in which such
bankrupt is a party, may be prosecuted and defended by such
assignee to its final conclusion in the same way and manner and
with the same effect as they might have been by the bankrupt."
So that here the prosecution or defense of any such suits in the
state courts is obviously intended to be placed under the
discretionary authority of the district court. And in point of
fact, as we all know, very few, comparatively speaking, of the
numerous suits pending in the state courts at the time of the
bankruptcy ever have been interfered with, and never, unless some
equity intervened which required the interposition of the district
court to sustain or protect it.
It would be easy to put cases in which the exercise of this
authority may be indispensable on the part of the district court,
to prevent irreparable injury, or loss, or waste, of the assets,
without adverting to the case at bar, where, upon the allegations
in the petition and supplemental petition, the creditors of the
bankrupt are attempting to enforce a mortgage asserted to be
illegal and invalid, and to procure a forced sale of the property
by the sheriff, in an illegal and irregular manner, thereby
sacrificing the interest of the other creditors under the
bankruptcy. Let us put the case of numerous suits pending, or to be
brought in the state courts, upon different mortgages, by the
mortgagees, upon various tracts of land and other property, some of
the mortgages being upon the whole of the tracts of land or other
property; some upon a part only thereof; some of them involving a
conflict of independent titles, some of them involving questions as
to the extinguishment, or satisfaction, or validity, of the debts,
and some of them involving very doubtful questions as to the
construction of the terms and extent of the conveyances. If all
such suits may be brought by the separate mortgagees, in the
different state tribunals, and the mortgagees cannot be compelled
to join in, or to be made parties defendant to one single bill (as
is certainly the case in those states where general equity
jurisdiction is not given to the state courts), it is most obvious
that, as each of the state tribunals may or must proceed upon the
single case only before it, the most conflicting decisions may be
made, and gross and irreparable injustice may be done to the other
mortgagees, as well as to the general creditors under the
bankruptcy. All this, however, is completely avoided, by bringing
the whole matters in controversy between all the mortgagees before
the district, or circuit court, making them all parties to the
summary proceedings in equity, and thus enabling the court to
marshal the rights and priorities and claims of all the parties,
and by a sale and other proceedings, after satisfying
Page 44 U. S. 320
the just claims of all the mortgagees, applying the residue of
the assets, if any, for the benefit of the general creditors.
Similar considerations would apply to other liens and securities,
held by different parties in the same property, or furnishing
grounds of conflict and controversy as to their respective rights
and claims.
Besides, how is the bankrupt court or the assignee, in a great
variety of cases of liens, mortgages, and other securities, to
ascertain the just and full amount thereof after the deduction of
all payments and equitable setoffs, unless it can entertain a suit
in equity, for a discovery of the debts, and payments, and setoffs,
and grant suitable relief in the premises? The bankrupt is not, in
his schedule, bound to specify them, and if he did,
non
constat that the other parties would admit their correctness,
or that the general creditors would admit their validity and
amount. The 11th section of the act gives the assignee full power
and 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, and to tender a due
performance of the conditions thereof. But how can this be
effectually done, unless the bankrupt court and assignee can, by
proceedings in that very court, ascertain what is the amount of
such mortgage, or pledge, or deposit, or lien, and what acts are to
be done as a performance of the mortgage, or pledge, or deposit,
through the instrumentality of a suit in the nature of a summary
proceeding in equity for a discovery and relief? If we are told
that resort may be had to the state courts for redress, one answer
is that in some of the states no adequate jurisdiction exists in
the state courts, since they are not clothed with general
jurisdiction in equity. But a stronger and more conclusive answer
is that Congress did not intend to trust the working of the
bankrupt system solely to the state courts of twenty-six states,
which were independent of any control by the general government and
were under no obligations to carry the system into effect. The
judicial power of the United States is, by the Constitution,
competent to all such purposes, and Congress, by the act, intended
to secure the complete administration of the whole system in its
own courts, as it constitutionally might do.
Let us look at another provision of the act already referred to,
which declares
"That in order to insure a speedy settlement and close of the
proceedings in each case in bankruptcy, it shall be the duty of the
court to order and direct a collection of the assets, and a
reduction of the same to money, and a distribution thereof, at as
early periods as practicable."
Now here again, it may be repeated, that the end is required,
and can it be doubted that adequate means to accomplish the end are
intended to be given? Construing the language of the 6th section as
we construe it, adequate means are given; construing it the other
way, and it excludes the jurisdiction, if not of the whole subject,
at least of the most important parts of
Page 44 U. S. 321
the system, and they are left solely to the cognizance of the
tribunals of twenty-six different states, no one of which is bound
by the acts of the others, or is under the control of the national
courts. If it be admitted (what cannot well be denied) that the
district court may order a sale of the property of the bankrupt,
under this section, how can that sale be made sale to the
purchasers, until all claims thereon have been ascertained and
adjusted? How can any distribution of the assets be made, until all
such claims are definitively liquidated? How can the proceedings be
brought to a close at all, far less within the two years, unless
all parties claiming an interest, adverse or otherwise, can be
brought before the bankrupt court, to assert and maintain them?
Besides, independently of the delays which must necessarily be
incident to a resort to state tribunals to adjust the matters and
rights affected by or arising in bankruptcy, considering the vast
number of cases pending in those courts in the due administration
of their own jurisprudence and laws, there could hardly fail to be
a conflict in the decisions as to the priority and extent of the
various claims of the creditors, pursuing their remedies therein in
distinct and independent suits, and perhaps, also, in different
state tribunals of co-ordinate jurisdiction. These are but a few of
the cases which may be put to show the propriety, nay, the
necessity, of the jurisdiction of the district court to the full
extent of reaching all cases arising out of the Bankrupt Act.
The truth is (as has been already asserted) that in no other way
could the bankrupt system be put into operation, without
interminable doubts, controversies, embarrassments, and
difficulties, or in such a manner as to achieve the true end and
design thereof. Its success was dependent upon the national
machinery being made adequate to all the exigencies of the act.
Prompt and ready action, without heavy charges or expenses, could
be safely relied on, when the whole jurisdiction was confided to a
single court, in the collection of the assets; in the ascertainment
and liquidation of the liens and other specific claims thereon; in
adjusting the various priorities and conflicting interests; in
marshaling the different funds and assets; in directing the sales
at such times and in such a manner as should best subserve the
interests of all concerned; in preventing, by injunction or
otherwise, any particular creditor or person, having an adverse
interest, from obtaining an unjust and inequitable preference over
the general creditors, by an improper use of his rights or his
remedies in the state tribunals; and finally in making a due
distribution of the assets and bringing to a close, within a
reasonable time, the whole proceedings in bankruptcy. Sound policy,
therefore, and a just regard to public as well as private
interests, manifestly dictated to Congress the propriety of vesting
in the district court full and complete jurisdiction over all cases
arising, or acts done, or matters involved, in the due
administration and final settlement of the bankrupt's estate; and
it is accordingly, in our judgment,
Page 44 U. S. 322
designedly given by the 6th section of the act. In this view of
the matter, the district court has not exceeded its jurisdiction in
entertaining the present suit, but it has full power and authority
to proceed to the due adjudication thereof upon its merits.
This view of the subject disposes also of the other question
made at the bar, whether this Court has jurisdiction to issue a
writ of prohibition to the district court in cases in bankruptcy,
if it has exceeded its proper jurisdiction. As the district court
has not exceeded its jurisdiction in the present case, the question
is not absolutely necessary to be decided. But it may be proper to
say, as the point has been fully argued, that we possess no
revising power over the decrees of the district court sitting in
bankruptcy; that the district court, in the present case, has not
interfered with, or in any manner evaded or obstructed, the
appellate authority of this Court, by entertaining the present
writ, and that we know of no case where this Court is authorized to
issue a writ of prohibition to the district court, except in the
cases expressly provided for by the 13th section of the Judiciary
Act of 1789, chap. 20, that is to say, where the district courts
are "proceeding as courts of admiralty and maritime
jurisdiction."
Upon the whole, the motion for a writ of prohibition is
Overruled.
MR. JUSTICE CATRON.
By the 14th section of the Judiciary Act this Court has power to
issue writs proper and necessary for the exercise of its
jurisdiction; having no jurisdiction in any given case, it can
issue no writ; that it has none to revise the proceedings of a
bankrupt court is our unanimous opinion. So far we adjudge, and in
this I concur. For further views why the prohibition cannot issue,
I refer to the conclusion of the principal opinion. But a majority
of my brethren see proper to go further and express their views at
large on the jurisdiction of the bankrupt court. In this course I
cannot concur; perhaps it is the result of timidity growing out of
long established judicial habits in courts of error elsewhere never
to hazard an opinion where no case was before the court, and when
that opinion might be justly arraigned as extrajudicial, and a mere
dictum by courts and lawyers; be partly disregarded while I was
living, and almost certainly be denounced as undue assumption when
I was no more. A measure of disregard awarded with an unsparing
hand, here and elsewhere, to the dicta of state judges under
similar circumstances, and it is due to the occasion and to myself
to say, that I have no doubt the dicta of this Court will only be
treated with becoming respect before the Court itself, so long as
some of the judges who concurred in them are present on the bench,
and afterwards be openly rejected as no authority -- as they are
not.
* The case standing in the district court of Louisiana will test
it as well as another. The application for a prohibition was
brought
Page 44 U. S. 323
before us at last term; then the late Mr. Justice Baldwin was
here, and one other of the judges now present was then absent; had
the matter not then been laid over on advisement, and a decision
been had adverse to our jurisdiction to award the writ; and an
opinion been expressed by the majority of the judges then present,
against the legality of the proceeding in the bankrupt court,
declaring it void, and that in the state court valid; would the
bankrupt court be bound to conform to such opinion; would it
overrule the instructions given in the particular case by the
circuit court on the questions adjourned, dismiss the petition of
Christy, the assignee, and let the decree and sale foreclosing the
mortgage made by the state court stand? Will the bankrupt court of
Pennsylvania be bound, either judicially or in comity, by the
opinion now given by a majority of the judges present, to overthrow
that of Mr. Justice Baldwin in the case hereto appended; or is it
bound to conform? Are the bankrupt courts in all the districts that
have held the state proceedings on liens to be valid, and not
subject to their supervision, now bound to suppress such
proceedings on the suggestion of assignees that they were erroneous
or inconvenient, regardless of proof, as was done in Louisiana, and
thereby overhaul cases in great numbers supposed to be settled?
Certainly not. This Court has no power over the bankrupt courts,
more than they have over this Court; the bankrupt law has made them
altogether independent, and their decrees as binding as ours, and
as final. We have as little power to control them as the state
courts have; they may concur with the reasoning of either, or
neither, at discretion. I therefore think we should refrain from
expressing any extrajudicial opinion on the present occasion; we
did so in
Nelson v.
Carland, 1 How. 265, a case involving the
constitutionality of the bankrupt law, and I then supposed most
properly, by the majority of the Court, who thought we had no
jurisdiction: a more imposing application, requiring an opinion,
could not have been presented, as twelve hundred cases depended on
the decision of the District Court of Missouri, which was opposed
to the constitutionality of the law; and to revise it the case was
brought here. So in Dorr's application at the present term for a
writ of habeas corpus, the same course was pursued. That
application and this are not distinguishable in principle: in
neither had this Court power to bring a case for judgment into it;
there, and here, we held nothing was before us, or could be brought
before us. With this course I would now content myself, was it not
that by acquiescing in silence with the opinion of my brethren I
might be supposed to have agreed with them in the course pursued,
and also in the views expressed in the affirmance of the
jurisdiction exercised under the bankrupt law by the circuit court
of Eastern Louisiana; to both of which my opinion is adverse, and
that most decidedly. The case presented to that court was this:
Page 44 U. S. 324
In 1839, Walden gave to the City Bank a mortgage to secure the
payment of $200,000 loaned him, on a plantation and town lots.
In 1840, he instituted a suit in the district court of the
state, in New Orleans, to set the mortgage aside as void; a trial
was had, and the court adjudged the mortgage valid; from this
Walden appealed to the Supreme Court of Louisiana, and that court
affirmed the judgment.
The bank then proceeded in the district court of the state to
foreclose the mortgage, and on 17 May, 1842, an order of seizure
and sale was made, and an actual seizure of the property was
executed on 19 May. The sale took place on 27 June.
The property was sold by lots, after appraisement, in conformity
to the laws of Louisiana, and the bank became the purchaser at the
price of $160,000.
That the sale was made in regular and due form, according to the
modes of proceeding in the state courts, cannot be
controverted.
On 18 June, 1842, Walden filed his petition for the benefit of
the bankrupt law, and on 18 July was declared a bankrupt, and an
assignee appointed. The $200,000 was on Walden's creditor list, but
the bank refused to prove its debt, and relied on the decree of
foreclosure, and the force of its lien, by the mortgage.
Christy, the assignee, filed his petition in the bankrupt court,
and as part of the proceeding in bankruptcy, to have the sale
declared void: 1. because it was made after Walden applied for the
benefit of the bankrupt law; 2. because the sale had been unfairly
conducted; 3. because the proceeding in the state court was
erroneous; 4. because the debt was affected with usury, and
therefore the mortgage void originally, and should be so decreed by
the bankrupt court.
The bank appeared, and pleaded to the jurisdiction of the
bankrupt court, and relied on the proceedings of the state court as
valid by answer. Exceptions were taken to this plea and answer,
which were adjourned to the circuit court; there it was adjudged,
and the district court instructed:
1. That it had full and ample jurisdiction to try all the
questions set forth in the petition of the assignee; and to try,
adjudge, and determine the same between the parties.
2. That the seizure and sale of the state court were void, and
that the district court of the United States do declare it
void.
3. That the district court has full power and authority to try
and determine the validity of the mortgage; and if proved on the
trial void, to declare it so, and to make a decree ordering the
property to be sold for the benefit of the creditors generally, but
if found valid, the bank to have the benefit of its lien.
This decree pronounced void the judgment of the Supreme
Court
Page 44 U. S. 325
of Louisiana, affirming that of the inferior court declaring the
mortgage valid and not affected with usury, which was conclusive
between Walden and the bank before the bankrupt law existed. 2. It
declared void the decree and order of seizure made before Walden
applied for the benefit of the act -- and it declared void the
sale: in short, it annulled all the judgments of the state courts,
and assumed to extinguish the title acquired under them, and has
extinguished in form and fact, if the views of a majority of my
present brethren be correct, a title indisputable according to the
laws of Louisiana standing alone; this is manifest from the
slightest examination of the fact, and laws applicable to them. On
18 July the decree declaring Walden a bankrupt was passed; up to
this date, he might or might not be declared a bankrupt, either at
his own instance or that of the court; therefore he was a proper
party before the state court until that time; afterwards he was
represented by his assignee; his property was under execution when
he was declared a bankrupt; if he had then died, still the duty of
the officer would have been to sell; the execution having
commenced, a natural or civil death could not defeat it, as the
property was in the custody of the law.
If it be true that this title is void, it follows every other is
void where a sale has taken place after the defendant to the
execution (issued by a state court) had applied for the benefit of
the bankrupt law, and this whether the execution was awarded in the
form usual to courts of law, or by decree in a court of chancery,
ordering a seizure and sale by force of the decree. Every sheriff
or commissioner in chancery, executing such writ or decree, must
have been a trespasser, and all persons taking under such sales
deluded purchasers. In the eighth circuit there are very many such
cases beyond doubt; they are founded on my opinion acting with the
district judges, who fully concurred with me, that such sales were
lawful, and the titles acquired under them valid. In two other
circuits at least, similar views have been entertained, and no
doubt similar consequences have followed. It is therefore due to
interests so extensive, affecting so many titles, that they should
not be overthrown until a case calling for the authoritative
adjudication of this Court is presented involving them, and
therefore these brief views have been expressed, not on the
jurisdiction of the bankrupt courts generally, but on the precise
facts presented as the grounds on which the prohibition was
demanded.
On the force of the lien, and the remedy to enforce it, as a
right excepted from the bankrupt law, I have said nothing, because
my late brother Baldwin was called on to follow the decision given
in Louisiana and refused. As he decided under the responsibility of
passing on men's rights, and from whose judgment there was no
appeal, his opinion is judicial, and authoritative throughout his
late circuit, whereas mine on the present occasion would be
extrajudicial,
Page 44 U. S. 326
and therefore I append his instead of any I may entertain
individually.
In the aforegoing opinion of MR. JUSTICE CATRON, MR. JUSTICE
DANIEL concurs.
Opinion of MR. JUSTICE BALDWIN, adopted by MR. JUSTICE CATRON as
a part of his dissenting opinion.
"
In the matter of John Kerlin, a Bankrupt. Oct. 26,
1843."
On 13 May, 1843, the assignees of John Kerlin, a bankrupt,
presented their petition to the judge of the District Court for the
Eastern District of Pennsylvania, praying for an order, authorizing
them to sell certain real estate of the bankrupt, in Delaware
County. On the face of the petition it appeared that at the time of
the decree of bankruptcy, the property was subjected to
encumbrances amounting to $14,800; that it had been sold by the
Sheriff of Delaware County on t11 May, 1843, for the sum of $8,000,
by virtue of proceedings issued by the Court of Common Pleas of
Delaware County, under one of the mortgages recorded before the
decree of bankruptcy, but the purchaser had not complied with the
terms of the sale. The assignee in bankruptcy contended that the
sheriff could not make title to the premises, and under a decision
of the Circuit Court in Louisiana, claimed the right to sell. The
district judge (Randall) refused to grant the order, but at request
of the parties adjourned the question to the circuit court, where
the following opinion was delivered by Baldwin J.
The following questions have been certified by the district
judge for the opinion of this Court:
"1st. Does a sale by a sheriff after a decree of bankruptcy, by
virtue of process issued on a judgment or mortgage, which was a
lien on the property of the bankrupt before and at the time of the
decree, divest the title of the assignee in bankruptcy?"
"2d. In case of a sale made by the assignee under an order of
the court, if the whole of the purchase money is not sufficient to
discharge the liens existing at the time of the decree, are the
liens divested by such sale?"
The leading principle which has governed this Court in the
construction of the Bankrupt Act of 1841 has been to consider it as
establishing a uniform law on the subject of bankruptcies, in the
most comprehensive sense of the words as used in the Constitution,
in which there is no other restriction on the power of Congress
than that the laws shall be uniform throughout the United, states.
To make it so in its practical operation, it must be taken as it
reads, its words must receive their appropriate meaning, with
reference to the whole law, and the policy developed in its various
provisions.
These constitute that system which it was intended to
establish,
Page 44 U. S. 327
not by assuming that the design of the law was to adopt any
preexisting rules and principles found only in the former
legislation of Congress, or in other countries, and then to so
apply it as to effectuate a supposed policy not apparent in the law
itself nor consistent with its language, the insertion of which
into the system must make it operate according to the intention of
other legislatures, and require a mode of construction which will
do violence to the plainest terms used to denote and declare the
policy and general principles which Congress have actually
established.
That the act of 1841 is anomalous in its provisions, unlike any
other known in any legislation here or elsewhere, cannot be
doubted. In the great outlines as well as in the details of the
system, we feel the exercise of an express plenary power, competent
to act at its own unlimited discretion (so that the action be
uniform), either by adopting or modifying some old system on the
subject of bankruptcy or prescribing a new one; the latter mode has
seemed the better in the eye of the legislature, and the duty of
the judicial department is to consider its intentions and to carry
it into effect.
In applying this principle to the solution of the first question
now submitted, there seems no difficulty as to the policy and
intentions of the law from its unequivocal language, which, as we
have heretofore held, contains an express prohibition to the
judicial power, not to so construe any provision as to annul,
destroy, or impair any lien, mortgage, or other security, on
property which is valid by the laws of the states respectively, and
not inconsistent with the 2d or 5th sections.
The validity of a mortgage or judgment is submitted to no other
test than these -- the laws of the states and these two sections;
if they stand this scrutiny, the duty of the courts is imperative.
The Bankrupt Act protects all valid judgments or mortgages against
any construction which shall impair them, to the same extent as the
Constitution guards the obligation of contracts when attempted to
be impaired by state laws. Having heretofore given this as, not the
construction merely, but the inevitable result of language
incapable of being mistaken in any fair reading of the last proviso
in the 2d section, and stated the reasons therefore at large, it is
not deemed either necessary or useful to now resume the
investigation of that provision of the law, as no doubt was then or
is now entertained of its meaning;
see Ex Parte Dudley,
Pa.L.J. 302. If additional reasons could be requisite to elucidate
this view of that proviso, they will be found in the 11th section,
which is framed to meet its provisions -- by authorizing the
assignee with the order of the court, to redeem and discharge any
mortgage or lien upon any property of the bankrupt, though payable
at a future day, and to tender performance of its conditions.
This authority to redeem and discharge a lien presupposes its
validity, that it cannot be impaired by any power of the court,
and
Page 44 U. S. 328
that the assignee of the bankrupt could not take the property so
bound before the lien was discharged, on any other terms than those
on which it was held by the bankrupt himself, before any decree of
bankruptcy had vested his rights in the assignee, else why should
it have been deemed necessary to authorize him to redeem or
discharge the lien, if it was not in full force as well after as
before the petition or decree. Neither the proviso to the 2d or the
11th section discriminates between a lien existing before the
petition filed or after it; both comprehend all liens existing at
the time of the decree as burdens on the property, and contemplate
the necessity of their payment in full before any other creditor
can come in upon it. The only fund for their payment being the
assets of the bankrupt in the hands of the assignee, it is clear
that the rights of those creditors who have liens, are, and must
be, paramount to any which accrue under the bankruptcy to the
assignee or general creditor. When liens are paid, then the
property which they bound becomes distributable by the assignee; if
not paid, the rights of the lien creditor remaining incapable of
being impaired by any authority conferred by the Bankrupt Act,
stands perfect as if that act had not been passed, so that if valid
by the law of the state, and not inconsistent with the 2d or 5th
sections of that law, they may consequently be enforced by a sale
or other process conformably to the existing laws of the state for
enforcing liens, which no court can annul, destroy, or impair, by
any proceeding in bankruptcy. On this subject, the principles
established by the Supreme Court, in the case of
Bronson v.
Kenzie, are replete with the soundest rules of jurisprudence
and constitutional law, and directly applicable to the question now
under consideration, which is, in all respects, analogous to the
one then before that court on the nature of the obligation, of the
extent of the mortgage and the rights of the mortgagee, and the
validity of the state law, which impaired his rights to enforce the
payment of the mortgage money. In that case, the Court declared
that the obligation of the contract, the rights which the mortgagee
acquired in the mortgage premises, depended on the then existing
laws of the state, which "created and defined the legal and
equitable obligation of the mortgage contract."
42 U. S. 1 How.
315. That the Constitution equally prohibits the impairing them by
a state law, acting on the remedy or directly on the contract
itself,
"if it so changes the nature and extent of existing remedies as
materially to impair the rights and interests of the owner, they
are just as much a violation of the compact as if they directly
overturned his rights and interests in it."
id. 42 U. S. 316.
"That it may be seriously impaired by burdening the proceedings
with new conditions and restrictions, so as to make the remedy
hardly worth pursuing."
Id., 42 U. S.
307.
"That the rights and remedies of mortgagor and mortgagee by the
law then in force, were a part of the law of the contract without
any express agreement of the parties -- they were annexed to
the
Page 44 U. S. 329
contract at the time it was made and formed a part of it, and
any subsequent law impairing the rights thus acquired, impairs the
obligations which the contract imposed."
id. 42 U. S. 319.
And on these principles a state law which encumbered the remedy of
the mortgagee by conditions imposed after its obligations had
attached was null and void. In this case, the question presented is
whether a court of the United States, sitting in bankruptcy, can,
by any rule, order, or decree, impair the right of a creditor by
mortgage or judgment, to enforce the payment of his debts by a sale
of the property mortgaged or encumbered by the lien of a judgment,
according to the provisions of the state laws. If the right and
power to sell can be taken from the creditors and conferred on the
assignee of a bankrupt, who is a debtor by a mortgage or judgment
existing at the time of the decree of bankruptcy; if the validity
of the liens, the time, and terms of sale, and the distribution of
the proceeds, can, under the bankrupt law, be determined and
regulated by a judge in a proceeding in bankruptcy, from which
there can be no appeal, then the remedy for enforcing a mortgage or
judgment is no longer annexed to the contract of a part of it. The
empty right still remains in the mortgagee, yet the remedy is taken
from him by the assignee of his debtor. The final adjudication, and
even his ultimate rights, and the mode of administering the remedy,
is made dependent on the discretion of a judge, exercised by the
summary proceedings prescribed by the Bankrupt Act, instead of the
regular course of the law as administered in the courts of a state.
For such a course there is not only no warrant in the law, but it
is a direct violation of the prohibition in the section, by so
construing the law as to negative its express language, and taking
from lien creditors, by mere judicial power, those very rights and
remedies which are placed beyond its exercise, in terms positively
forbidding it, in as plain and emphatic language as that in which
the Constitution declares that "no state shall pass any law
impairing the obligation of contracts." The principles of the
Supreme Court in the case of Bronson, must be repudiated before a
judge can exercise a power under the Bankrupt Act which is
forbidden to a state by the Constitution. If either the obligation
or the remedy is impaired, it matters not by whom it is done; no
state has any power to do it; Congress can only do it by a "uniform
law on the subject of bankruptcy," nor when the law is silent can
the court do it without the usurpation of legislative power. But
the law is not silent; it speaks to the judge; it forbids him to do
any act which impairs any lien then existing, and, in deciding the
first question submitted in this case, I answer in the affirmative,
and repeat the language of the Supreme Court:
"and it would ill become this Court under any circumstances to
depart from the plain meaning of the words used, and to sanction a
distinction between the right and the remedy which would render
this provision illusive and nugatory; mere
Page 44 U. S. 330
words of form, affording no protection and producing no
practical result."
42 U. S. 1 How.
318.
But were the Bankrupt Act open to construction, and the proviso
of the 2d section left out of view, the result would be the same.
There is no provision in the act that interferes with the laws of a
state, which create and defend the obligation of a contract which
is a lien on property; there is nothing which professes to effect
the remedies attached to such contract, one incident of which is
the power of the creditor to sell or extend as the laws of the
respective states have prescribed; it requires the plenary and
unlimited power of Congress over the whole subject of bankruptcies
to abrogate state laws relating to liens, or to take from state
courts the administration of remedies to enforce them, and above
all to prohibit the creditor from resorting for his remedy to that
law which prescribed it, and substituting the assignee of a
bankrupt, the mere creature and servant of a judge of the district
court, in his place, without and against the will of the creditor.
Congress may delegate such power to a judge or a court, but it must
be in plain terms, leaving no doubt of their intention to do so;
but the proposition is a bold one indeed, that judicial power is
competent to do it, when the legislature has not given its sanction
to its exercise; it would give the Constitution a construction
which would authorize the courts to exercise the power granted to
the Congress, without the passage of a law delegating it to the
judicial department. So far as the Bankrupt Act, by express words,
or necessary implication, affects state laws, state rights, the
power of state courts, or the rights and remedies of suitors
therein, it must be paramount, yet too much caution cannot be
observed on this subject by the courts of the United States.
The settled course of jurisprudence in the state is to be
overlooked only when such is the intention of the law; no intention
to do so is to be presumed, no policy is to be assumed as the basis
of the law, other than what its words indicate, and nothing is to
be borrowed from any other system which is not consistent with that
which Congress has thought proper to create. A leading feature of
that system is the protection of all liens existing at the time of
the decree of bankruptcy; they are created by contracts which by
their own force create a remedy to enforce them; this remedy is the
right of the creditor, the rule for its exercise is the law of the
state, the power to sell in this state is the essence of both right
and remedy. Congress has not impaired either, and forbidden it to
be done by any construction of the Bankrupt Act; a sale made
pursuant to the laws of the state must therefore divest the title
of the assignee in bankruptcy.
If the foregoing views are sound, they dispose of the two
questions; an order of the court in bankruptcy can confer on the
assignee no power which Congress has not conferred on the court;
its powers are what the law has delegated, and none other; the
law
Page 44 U. S. 331
may and must be construed where it is open to construction, but
where the law itself forbids construction it must be taken and
followed as it reads. If, therefore, an order of court is made that
would, in its execution by an assignee, impair a lien protected by
the proviso in the 2d section, it is an excess of authority, and
therefore void;
a fortiori, the divesting of a lien in the
case put in this question is a much higher act of power than merely
impairing it by affecting the remedy. The property bound by the
lien is taken from the creditor, his whole right is extinguished,
and his debt is lost entirely, unless he comes in for his dividend
of the assets of the bankrupt's estate.
Every principle established by the Supreme Court in the case of
Bronson, as well as the protection given to liens by the
Bankrupt Act, would be utterly prostrated, if a sale by an assignee
would disencumber property mortgaged or bound by a judgment; such a
doctrine would equally militate with other plain provisions of the
law, which clearly point out what passes by the decree of
bankruptcy to the assignee, when it passes, the extent of his, and
the power of the court, and the nature of a purchaser's title. The
3d section vests all the property and the rights of property of the
bankrupt in the assignee "from the time of the decree of
bankruptcy;" he then stands in the position of the bankrupt "before
and at the time of his bankruptcy declared;" standing in the place
of the bankrupt, the measure of his rights of property is
necessarily that of the assignee, who can take nothing which did
not belong to the bankrupt when the law made the conveyance of all
his rights of property. To the property which was mortgaged, the
only right of the assignee was to redeem it; if it was bound by
judgment or other lien, the bankrupt held it subject to its
payment; he could sell the equity of redemption on the land itself,
subject to the lien, but the purchaser could not hold without
paying it. The assignee can have no other rights by force of the
decree, which is a conveyance by operation of law, than he could
acquire by the deed to the bankrupt; nor could the assignee convey
a greater interest than the law devolved on him; or the court by
their order make his or the estate of a purchaser under him, an
absolute one discharged of the lien without payment. The 11th
section is framed to meet this view of the 3d; by giving power to
the court to authorize the assignee to redeem, and omitting any
power to order a sale, it is manifestly intended merely to put the
assignee in the place of the bankrupt, but in no other respect than
enabling the assignee to appropriate the assets in his hands to
disencumber the property by payment. Following the proviso in the
2d section, the 11th withholds the power of sale, as that might
impair the lien; we thus find that it was deemed necessary to
provide for the power of the assignee to redeem; it cannot have
been intended that there should be by implication alone the higher
power of sale, that in its exercise would take from the
Page 44 U. S. 332
creditor the protection given so carefully by the 2d section;
the words of the 11th admit of no such construction, and even if
they did, the court could not give it without overlooking the plain
language of the 15th section.
"And be it further enacted that a copy of any decree of
bankruptcy, and the appointment of assignee, as directed by the 3d
section of this act, shall be recited in every deed of lands
belonging to the bankrupt, sold and conveyed by any assignee under
and by virtue of this act, and that such recital, together with a
certified copy of such order, shall be full and complete evidence
both of the bankruptcy and assignment therein recited, and
supersede the necessity of every other proof of such bankruptcy and
assignment to validate the said deed, and all deeds containing such
recital, and supported by such proof, shall be as effectual to pass
the title of the bankrupt of, in, and to the lands therein
mentioned and described to the purchaser, as fully to all intents
and purposes as if made by such bankrupt himself immediately before
such order."
Here is as precise and perfect a definition of the title which
passes to the purchaser by a sale by the assignee under an order of
court, or otherwise by virtue of the Bankrupt Act, with the effect
thereof; "it is the same to all intents and purposes as if made by
such bankrupt himself immediately before such order" -- in the
words of the 15th section, with or without an order of sale. There
is no express provision giving the court power to order a sale. The
3d section authorizes the assignee
"to sell, manage, and dispose of the property, to sue for and
defend the same, subject to the orders and directions of the court,
as fully to all intents and purposes as if the same were vested in
or might be exercised by such bankrupt before or at the time of his
bankruptcy, declared as aforesaid."
Connecting this with the 15th section, declaring the effect of a
sale by an assignee, the answer to the second question is most
obvious. Such sale has the same effect as if made by the bankrupt,
and no other. It can divest no lien existing at the time of the
decree or order declaring him a bankrupt. The word "order" in the
15th section refers either to that or to the order of sale; it is
not material to which. If to the decree, then the deed of the
assignee conveys only such title and estate as the bankrupt then
had; if to the order of sale, then that is the time to which his
right is referred. But in neither case can a sale divest a lien
"existing before or at the time," or "immediately" before such
order. Thus taken, the Bankrupt Act is an affirmance of the
universal principle as laid down by the Supreme Court in
Rankin v.
Scott, 12 Wheat. 179, "that a prior lien gives a
prior claim, which is entitled to a prior satisfaction out of the
subject it binds," unless it be defective, or the party holding it
has done some act to postpone him, and that a purchaser is bound by
the lien unless there is a prior act of the legislature to protect
him from it.
25 U. S. 12
Wheat. 80. The second question, therefore, is answered in the
negative.