1. Mortgagees who prove their debt in the bankruptcy proceedings
against the mortgagor become creditors of his general estate only
for the balance of the debt after deducting the value of the
mortgaged property, to be ascertained by agreement, sale, or in
such other manner as the bankrupt court may direct.
2. Mortgagees may, pursuant to leave of that court, institute a
suit against the bankrupt in another court for the foreclosure of
his equity of redemption and the sale of the mortgaged
premises.
3. An assignee in bankruptcy is not required to take measures
for the sale of the mortgaged property of the bankrupt unless its
value exceeds the encumbrance.
On the 18th of June, 1870, John McHenry, being indebted to a
society known as La Societe Francaise D'Epargnes in the sum of
$14,000, made his promissory note for that amount, payable twelve
months after date, and secured its payment by a mortgage on certain
property in the city of San Francisco, in the execution of which
his wife did not join. McHenry was, March 20, 1872, duly
adjudicated a bankrupt in the District Court of the United States
for the District of California, and on the 14th of June following
the society proved its debt before the register. Aug. 15, 1872,
proceedings in foreclosure were commenced by the society in the
District Court of the Nineteenth Judicial District of the State of
California against the assignee in bankruptcy, McHenry, his wife
and other parties claiming interests in the property. The assignee
made no defense. McHenry and wife demurred, and, among other
grounds, set up the bankruptcy proceedings and the absence of leave
of the bankrupt court to commence the suit. Oct. 4, 1872,
application was made to the latter court for such leave, and, the
assignee having so consented in open court, the order was
Page 95 U. S. 59
granted, provided that in said action no judgment for any
deficiency be taken against the bankrupt or his assignee. The cause
was then, notwithstanding certain special defenses of the wife,
prosecuted to a decree which made no provision for enforcing the
payment of any sum that might remain due after the sale of the
mortgaged premises. McHenry and wife appealed to the supreme court
of the state, where the decree below was affirmed. The case was
then brought here.
MR. CHIEF JUSTICE WAITE delivered the opinion of the Court.
In
Claflin v. Houseman, 93 U. S.
130, we decided that, under the law as it stood previous
to the adoption of the Revised Statutes, the courts of the United
States did not have exclusive jurisdiction of suits for the
settlement of conflicting claims to property belonging to the
estate of a bankrupt, and that an assignee in bankruptcy might sue
in a state court to collect the assets. In
Mays v.
Fritton, 20 Wall. 414, we also held that if an
assignee in bankruptcy submitted himself to the jurisdiction of a
state court in a suit affecting the estate which was pending when
the proceedings in bankruptcy were commenced, he was bound by any
judgment that might be rendered. And in
Eyster v. Gaff,
91 U. S. 525,
MR. JUSTICE MILLER, speaking for the Court, said:
"The debtor of a bankrupt, or the man who contests the right to
real or personal property with him, loses none of his rights by the
bankruptcy of his adversary. The same courts remain open to him in
such contests, and the statute has not divested those courts of
jurisdiction in such actions. If it has for certain classes of
actions conferred jurisdiction for the benefit of the assignee in
the circuit and district courts of the United states, it is
concurrent, and does not divest that of the state courts."
The principles upon which those cases rest are decisive of this.
The complainant, having a debt against the bankrupt secured by
mortgage, proved the claim against the estate.
Page 95 U. S. 60
This, under sec. 20 of the bankrupt law, 14 Stat. 526,
Rev.Stat., sec. 5075, admitted the complainant as a creditor of the
general estate only for the balance of the debt after deducting the
value of the mortgaged property, to be ascertained by agreement,
sale, or in such other manner as the bankrupt court might direct.
The assignee is not required to take measures for the sale of
mortgaged property, unless its value is greater than the
encumbrance. His duties relate chiefly to unsecured creditors, and
he need not trouble himself about encumbered property unless
something may be realized out of it on their account or unless it
becomes necessary to do so in order to ascertain the rights of the
secured creditor in the general estate. If he does and it becomes
necessary to adjust the liens before his sale, he may, under the
ruling in
Claflin v. Houseman, institute the necessary
proceedings for that purpose in the courts of the United states or
of the state, as he chooses. If he does not, the secured creditor
who wishes to make his security available must act, and, having
obtained leave of the bankrupt court to bring his action for that
purpose, he may proceed in the state court, if the assignee does
not object, or in the courts of the United states, at his election.
Here the necessary leave to sue was obtained before the decree was
rendered, and the assignee, instead of objecting to the
jurisdiction of the state court, consented to that mode of
proceeding. The bankrupt and his wife alone objected, but as to
them, as we held in
Eyster v. Gaff, the jurisdiction of
the state court was not divested by the proceedings in
bankruptcy.
Judgment affirmed.
