U.S. Supreme Court Fowler v. Hart, 54 U.S. 13 How. 373 373 (1851)
Fowler v. Hart
54 U.S. (13 How.) 373
APPEAL FROM THE CIRCUIT COURT OF THE UNITED
STATES FOR THE EASTERN DISTRICT OF LOUISIANA
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.
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.
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
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.
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
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
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.
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.