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U.S. Supreme Court

McHenry v. La Societe Francaise D'Epargnes, 95 U.S. 58 (1877)

McHenry v. La Societe Francaise D'Epargnes

95 U.S. 58


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 chanroblesvirtualawlibrary

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.

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