U.S. Supreme Court
Nugent v. Boyd, 44 U.S. 3 How. 426 426 (1845)
Nugent v. Boyd,
44 U.S. (3 How.) 426
The principles established in the case of Ex Parte City Bank of New Orleans in the matter of Christy, assignee of Walden, renewed and confirmed.
But this Court does not decide whether or not the jurisdiction of the district court over all the property of a bankrupt, mortgaged or otherwise, is exclusive, so as to take away from the state courts in such cases.
The controversy was between the bankrupt's assignee, on one side, and a mortgage creditor and purchasers at the sale under state process of the mortgaged premises, on the other.
The points to be chanrobles.com-red
decided grew out of the bankrupt law, and especially out of the saving in favor of state liens in the 2d section, and the jurisdiction granted to the district and circuit courts of the United States in cases of bankruptcy by the 6th and 8th. The validity of certain rules established by the District Court of Louisiana, sitting in bankruptcy, was questioned, and the mortgage creditor, not having proved under the commission, claimed exemption from those rules, and asserted the right to pursue his prior lien in the state court.
The complainant's bill stated in substance that Elizabeth Norton filed her petition to be declared a bankrupt on 9 May, 1842. On 1 June it was decreed accordingly, and Richard Nugent appointed assignee.
At the time, and long before the date of the petition, George W. Boyd, one of the defendants, was the holder of notes, secured by mortgage duly recorded according to the laws of Louisiana, for the sum of $9,000, on which judgment had been rendered, order of seizure and sale granted, and execution issued and been levied, all before the date of the bankrupt's petition. The levy took place on 16 February, 1842. The sale was the only proceeding after the date of the decree of bankruptcy, that decree being dated the 1st and the sale taking place on 4 June, 1842.
The bill admitted that all the forms and notices &c., required by the laws of Louisiana for the sale of mortgaged premises under execution, were observed, but set up the petition and decree of bankruptcy, made before the sale, and alleged, that before the property was sold the assignee gave written notice of the decree, and of his appointment as assignee under it, to the sheriff, the mortgage creditor, Boyd, and to Preston and Phelps, who afterwards became the purchasers of the mortgaged premises at sheriff's sale, cautioning them respectively, and claiming at the same time the right to stay the sale, and take the property into his own hands for sale and distribution under the rules of the bankrupt court. Copies of the proceedings in bankruptcy and of the rules of the bankrupt court were made exhibits to the bill. These general orders of the District Court of the United States for the District of Louisiana, sitting in bankruptcy, and purporting to be made in pursuance of the authority delegated to it by the Bankrupt Act, and especially the 6th section thereof, provided in substance that notice should be served on all creditors of the bankrupt who had any special mortgage, lien, or privilege. The assignee was authorized to take a rule on the mortgage creditor to show cause why the mortgaged premises should not be sold by the assignee, and the court would thereupon pass in order of sale, which order should ipso facto annul the mortgages, liens &c., existing on the property sold, and upon its presentation to the recorder of mortgages, he should be required to cancel the inscription of all such mortgages, liens &c., on his records, and the liens, privileges &c., should attach to the proceeds in the hands chanrobles.com-red
of the assignee. The mortgage creditor was entitled, under certain reservations, to prescribe the terms of sale, and at such sale might become the purchaser, but was required to pay the expenses and commissions on the sale, and the surplus, if any, over and above the amount of his mortgage, but these privileges were allowed only on the condition of his filing the proof of his debt in the registry of the court.
The complainant alleged, that by the act of Congress the rules aforesaid made in pursuance thereof, and the proceedings thereunder in the case of the bankrupt, the sale should have been stayed, and the said George W. Boyd having been notified and cited to appear and contest the proceedings in bankruptcy, all the acts done under color of the state process, after the date of the petition, were irregular and void; that Preston and Phelps having also been notified and cautioned, they derived no title from the sheriff's sale, such sale being invalid.
The bill prayed that the sheriff's sale might be set aside, the title of Preston and Phelps declared null; that George W. Boyd be compelled to come into the district court, sitting in bankruptcy, and conform himself in all things to the rules of said court in such cases, and for other and general relief.
To this bill there was a demurrer, which, admitting all the facts, insisted, in point of law,
1. That the petition, decree, appointment of the assignee &c., did not prevent the mortgage creditor from enforcing his lien under the process of the state court.
2. That the district court had no right to pass the rules insisted on.
3. That the mortgage creditor was not bound by law to submit his claims to the district court, sitting in bankruptcy, but might elect not to prove his debt, and still pursue his lien and remedy under the law.
4. That the title obtained at the sheriff's sale was, according to the facts set forth by the complainant, a good title for the purchasers against the assignee.
On the hearing of the argument on the bill and demurrer, the circuit court sustained the demurrer, and ordered the bill of the complainant to be dismissed.
From this decree the complainant appealed. chanrobles.com-red