U.S. Supreme Court
Ex Parte Christy, 44 U.S. 3 How. 292 292 (1845)
Ex Parte Christy
44 U.S. (3 How.) 292
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. chanrobles.com-red
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
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. chanrobles.com-red
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."
"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, chanrobles.com-red
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
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. chanrobles.com-red