Houston v. City Bank of New Orleans, 47 U.S. 486 (1848)

U.S. Supreme Court

Houston v. City Bank of New Orleans, 47 U.S. 6 How. 486 486 (1848) Houston v. City Bank of New Orleans

47 U.S. (6 How.) 486

ERROR TO THE SUPREME COURT

OF THE STATE OF LOUISIANA

Syllabus

The district court of the United States, sitting in bankruptcy, had power to decree a sale of the mortgaged property of a bankrupt, and if there are more mortgages than one, and the proceeds of sale are insufficient to discharge the eldest mortgage, the purchaser will hold the property free and clear of all encumbrances arising from the junior mortgage.

The facts in the case are fully set forth in the opinion of the Court.

Page 47 U. S. 504

MR. CHIEF JUSTICE TANEY delivered the opinion of the Court.

The record is voluminous, and necessarily so from the nature of the controversy in the state courts. But the following summary statement contains all the facts material to the question now before this Court upon the writ of error.

In 1842, Thomas Banks, a citizen of New Orleans, was declared a bankrupt under the act of Congress to establish a uniform system of bankruptcy, and F. B. Conrad appointed his assignee. At the time of his bankruptcy, he was the owner of certain real property in New Orleans called Banks' Arcade, upon which he had executed three several mortgages, all of them outstanding and unsatisfied at the time he became a bankrupt. The first was to the New Orleans Canal & Banking Company, the second to the Carrollton Railroad Company, and the third to the City Bank of New Orleans.

Upon the application of the assignee, the district court of the United States ordered those mortgaged premises to be sold and directed that the mortgages should be cancelled and the property sold free from encumbrance, rendering to the parties interested their respective priorities in the proceeds. It

Page 47 U. S. 505

was accordingly sold and purchased by the appellants, and they having complied with the terms of sale, conveyances have been made to them by the assignee, and possession delivered.

Before the money was paid by the purchasers, there were some proceedings in the state courts in order to obtain the actual cancellation of these mortgages in the office in which they were recorded. But these proceedings are not material to the question before this Court, and it is unnecessary to state them.

After the sale was made and reported by the assignee, the New Orleans Canal & Banking Company, which held the elder mortgage, filed a petition in the district court praying that the proceeds of the sale might be paid over to that bank, the whole amount for which the property was sold being insufficient to satisfy the debt due on that mortgage. The said bank had, it appears, before this application was made, consented to the sale by the assignee and agreed that the mortgages in its favor should be cancelled for the purpose of giving titles to the purchasers, reserving its rights to be paid first out of the proceeds.

But neither the Carrollton Railroad Company nor the City Bank of New Orleans appeared in the district court in any of the proceedings hereinbefore mentioned, although regularly notified. Nor did either of them exhibit or prove any claim against the bankrupt's estate nor assent or object to the sale or to any of the proceedings therein.

Subsequently, however, and after the proceedings upon this subject in the district court had been completed and the purchasers had complied with the terms of sale and received their titles from the assignee and been placed in possession of the premises, the City Bank of New Orleans, which held the third mortgage, instituted a suit in the commercial court of the state for the purpose of charging the property in the hands of the purchasers with the money due on its mortgage. The purchasers resisted the claim upon the ground that they were entitled to hold the property free and discharged from this encumbrance under the sale made to them by the assignee, as hereinbefore stated. And the commercial court having decided in favor of the validity of this defense, the bank appealed to the supreme court of the state, where the question was raised and argued whether, under the act of Congress establishing a uniform system of bankruptcy, the purchasers were entitled to hold the premises free and discharged from the mortgage to the City Bank.

Upon this question the supreme court reversed the judgment

Page 47 U. S. 506

of the commercial court and adjudged that the property should be seized by the sheriff and sold to satisfy the demand of the bank. And it is this judgment of the Supreme Court of Louisiana that is now before this Court for revision.

The record manifestly presents a case within the twenty-fifth section of the Act of Congress of 1789, and the jurisdiction of this Court has not been disputed. The authority of the district court of the United States to order the sale of the property free from and discharged of the encumbrances, as mentioned in the proceedings, was drawn in question, and the decision of the supreme court of the state was against the validity of the authority thus exercised by the district court. And this is the only question upon which this Court is authorized to pass judgment, for the same section of the act of 1789 which gives jurisdiction in the cases therein enumerated forbids it to be exercised over any other question which may have arisen in the case or been decided by the state court.

The question, then, to be decided by this Court is simply this: are the purchasers under the sale made by the assignee of Thomas Banks, as hereinbefore stated, under the authority of the district court, entitled to hold the property free and discharged from the mortgage and encumbrance of the City Bank?

With every respect for the learned state court which has decided against the right of the purchasers, we cannot persuade ourselves that it can be either necessary or proper, at this day, for this Court, in deciding a case like this, to enter into an argument upon the construction of the bankrupt law in order to vindicate its judgment. The power of the district court over mortgages, in cases of bankruptcy, was fully argued and considered in the two cases reported in 44 U. S. 3 How. 292, and 44 U. S. 426, as appears by the opinions delivered by the Court and the opinions of the Justices who dissented. But whatever difference of opinion existed as to some of the propositions maintained in these cases by the majority of the Court, there has been no division of opinion upon a question like the one presented in this record. And the Court is unanimously of opinion that the sale made by the assignee of the property in question is valid and that the purchasers are entitled to hold it free and discharged from the mortgage to the City Bank and from all other encumbrances mentioned in the proceedings.

The judgment of the Supreme Court of Louisiana must therefore be reversed.

Order

This cause came on to be heard on the transcript of the

Page 47 U. S. 507

record from the Supreme Court of the State of Louisiana and was argued by counsel. On consideration whereof it is now here ordered and adjudged by this Court that the judgment of the said supreme court in this cause be and the same is hereby reversed with costs, and that this cause be and the same is hereby remanded to the said supreme court, to be proceeded with in conformity to the opinion of this Court and as to law and justice shall appertain.