Real property in Louisiana was bound by a judicial mortgage.
The owners of the property then took the benefit of the Bankrupt
Act of the United States.
A creditor of the bankrupt then filed a petition against the
assignee, alleging that he had a mortgage upon the same property
prior in date to the judicial mortgage, but that by some error
other property had been named, and praying to have the error
corrected. Of this proceeding the judgment creditor had no
notice.
Page 54 U. S. 374
The court being satisfied of the error, ordered the mortgage to
be reformed, and thus gave the judgment creditor the second lien
instead of the first, and then decreed that the property should be
sold free of all encumbrances. Of this proceeding and also of the
distribution of the proceeds of sale the judgment creditor had
notice, but omitted to protect his rights.
In consequence of this neglect, he cannot afterwards assert his
claim against a purchaser who has bought the property as being free
from all encumbrances.
The facts are stated in the opinion of the Court.
Page 54 U. S. 377
MR. JUSTICE McLEAN delivered the opinion of the Court.
Fowler filed his bill in the Third District Court of New Orleans
representing that on 16 December, 1839, he recovered a judgment in
the Commercial Court of New Orleans against Daniel T. Walden and
William Christy for $3,530.22, besides interest; that on 29
December, 1839, he caused the judgment to be duly inscribed in the
office of the Recorder of Mortgages for the Parish of New Orleans,
by which the same became a judicial mortgage on the real estate of
the defendants in the parish; that Walden afterwards became
bankrupt, and
Page 54 U. S. 378
Christy was appointed his assignee, and that he procured an
entry of cancellation to be made by the recorder of judicial
mortgages without his consent and illegally; that the mortgage
remains in force.
And the plaintiff states that when the judgment was recorded,
and up to the time of the bankruptcy of Walden, he was the owner
and in possession of a certain lot of ground and buildings thereon
in the City of New Orleans, to-wit, in the second municipality, in
the square bounded by New Levee, St. Joseph, Commerce, and Julia
Streets, measuring 23 feet 5 inches front on New Levee Street, by
about 125 feet 6 inches in depth on the side nearest St. Joseph
Street, 124 feet 7 inches in depth on the side nearest Julia
Street, and about 21 feet 8 inches on the rear line; which property
is liable to the judicial mortgage of the petitioner; that Christy,
the assignee of Walden, sold the same lot to one Nathan Hart of New
York, who took possession thereof and still remains in possession;
that he well knew at the time of his purchase that the petitioner's
mortgage was a lien on the same and that Christy, the assignee, had
no power to cancel the same. And the petitioner avers that his
judgment lien was good under the 2d section of the Bankrupt
Law.
On the application of Hart, he being a citizen of New York, the
suit was removed from the state court of the circuit court of the
United States.
In his answer, Hart denies that the petitioner has a mortgage on
the property described in his petition, and states that he
purchased the same for the sum of $4,700 under a sale of the
marshal on 16 June, 1845, in pursuance of a decree of the United
States district court entered 23 May, 1845, sitting as a court of
bankruptcy in the matter of the bankruptcy of Daniel T. Walden, and
confirmed according to law by a sale duly recorded from Christy,
the assignee, before a notary public 19 June, 1845, and clear of
all mortgages, the same having been cancelled, by order of the
judgment of said court, 23 May, 1845, on a rule, notice of which
was duly served on petitioner.
The mortgage of the defendant Hart on the above property was
dated 22 May, 1838; the judicial mortgage of the petitioner took
effect 29 December, 1839. But after the bankruptcy of Walden and
before the sale of the property to Hart by the assignee, it was
discovered that there was a mistake in the mortgage in describing
the property intended to be mortgaged. To correct this mistake a
bill was filed by Hart against Christy, the assignee, and on 5
December, 1844, a decree was obtained correcting the mortgage so as
to describe the lot intended to be mortgaged. Of this proceeding
the petitioner, Fowler, seems to have had no notice.
Page 54 U. S. 379
Afterwards, on 24 April, 1845, the assignee petitioned the
district court, stating
"that there is still in his possession, as assignee, the
following described property, specially mortgaged to Nathan Hart to
secure the payment of the sum of $8,655, with interest, which he
prays may be sold on certain terms named. The lot above described
is stated, and also other property of the bankrupt."
The court ordered that due notice of the petition be published
in two newspapers printed in the district ten days at least before
the time assigned for the hearing, and that the petition be heard
on 23 May ensuing.
On 10 May, 1845, the following rule was entered by the
court:
"The assignee of the said estate having filed in this court a
petition as above described, it is ordered by the court that a
hearing of the said petition be had on Friday 23 May next, at 10
o'clock A.M., when, as one of the mortgage creditors of said
estate, you are notified to appear and show cause why the property,
as described below should not be sold upon the terms and in the
manner and form set forth in said petition, and why the said
assignee should not be authorized to erase and cancel the
mortgages, judgments, and liens recorded against paid bankrupt, and
in favor of certain creditors of the estate, affecting the property
surrendered, so that said assignee may convey a clear and
unencumbered title to any purchaser thereof, reserving to such
creditors all their rights in law to the proceeds of the sale of
the said property upon the final distribution thereof."
To this rule was appended the following, with other descriptions
of property ordered to be sold.
"1. Property in the second municipality, bounded by New Levee,
Commerce, St. Joseph, and Julia Streets, with the improvements
thereon, mortgaged to Nathan Hart. Terms, one-third cash, the
balance on a credit of twelve and eighteen months."
To the property above designated "No. 1" the name of Joseph
Fowler was appended, and the marshal returned "that he had received
the same on 12h May, 1845, and on the same day served a copy of the
rule on the within named Joseph Fowler."
The principal objection to the validity of the sale of the
property to Hart is founded on the procedure in the district court
for the correction of the misdescription of the mortgage. As
between the mortgagor and mortgagee, there can be no objection to
this proceeding. The district court had jurisdiction of the matter,
and it is but the ordinary exercise of the powers of a court of
chancery to reform a mortgage or other instrument so as to
effectuate the intention of the parties. But it is alleged that
Walden having become a bankrupt, his property was vested in his
assignee for the benefit of his creditors, and that the
judicial
Page 54 U. S. 380
mortgage of the petitioner could not be affected by a procedure
in which the petitioner was not a party, and of which he had no
notice.
The assignee generally represents the creditors, and being made
a party to the proceeding on the mortgage, he appeared and denied
the allegations of the petition of the mortgagee; but on the
hearing, the district court was satisfied of the truth of the
allegations in the bill, and reformed the mortgage so as to
describe truly the property intended to be mortgaged. It is true
that Fowler, the petitioner, was not a party to this proceeding,
and if the action of the district judge had here terminated, it
would be difficult to maintain the decree.
By the 11th section of the Bankrupt Law, the court had power to
order the assignee to redeem and discharge "any mortgage or other
pledge or deposit, or lien upon any property," &c. It also
necessarily had the power, on the sale of mortgaged premises, to
distribute the proceeds as the law required. And in regard to the
property in question, it appears that due notice was given to
Fowler of the application for the sale of it by Hart, who claimed
to have a special mortgage on it, and the property was
substantially described, and the day stated on which the court
would act on the application. And in addition, a notice was
published in two newspapers ten days before the time set for
hearing by the court. The object of this notice was stated to be to
make an unembarrassed title to the purchaser and enable Fowler to
make any objections he might have to the sale and the cancelment of
his mortgage. That the right of creditors were reserved as to the
proceeds of the mortgaged premises on a final distribution.
Whether the petitioner Fowler took any steps under this notice
does not appear, and in the absence of such evidence, it may well
be presumed that he acquiesced in the procedure. The notice
afforded him an opportunity to assert his rights and to object to
the decree for the reform of Hart's mortgage, of which he now
complains, as fully as if he had been made a party to that
proceeding. This he could have stated as an objection to the sale
of the premises, or in claiming the proceeds of that sale. The
reform of the mortgage by the court could not have estopped him
from the assertion of his rights, as he was not a party to that
proceeding of the court. But having neglected to assert his rights
on the above occasion, it is now too late to set them up against
the purchaser of the property at the sale.
Although there is some discrepancy in the description of the
property contained in the notice from that in the decree reforming
the mortgage, yet substantially it is believed to embrace the
Page 54 U. S. 381
same property, and as the notice was served upon the petitioner
as having a mortgage on the property, we think it was sufficient.
The decree of the circuit court is
Affirmed with costs.
Order
This cause came on to be heard on the transcript of the record
from the Circuit Court of the United States for the Eastern
District of Louisiana, and was argued by counsel. On consideration
whereof it is now here ordered, adjudged, and decreed by this Court
that the decree of the said district court in this cause be and the
same is hereby affirmed.