Factors Traders Ins Co v. Murphy

• Decision Date: 05 May 1884
• Citation: 4 S.Ct. 679,111 U.S. 738,28 L.Ed. 582
• Parties: FACTORS' & TRADERS' INS. CO. v. MURPHY and others
• Court: U.S. Supreme Court

111 U.S. 738

4 S.Ct. 679

28 L.Ed. 582

FACTORS' & TRADERS' INS. CO. v. MURPHY and others.

May 5, 1884.

[Syllabus from pages 738-739 intentionally omitted]

[Statement of Case from page 739 intentionally omitted] G. L. Hall and R. L. Gibson, for plaintiff in error.

Chas. W. Hornor, for defendants in error.

MILLER, J.

This is a writ of error to the supreme court of Louisiana. The defendant in error sued in the proper court of the state to foreclose a mortgage given by Paul Cook and Justus Vairin, Jr., to secure the payment of four notes of $10,000 each, given by them in their partnership name of Paul Cook & Co., of which she was then the holder and owner of two, all the notes being of the same date. She alleged that Cook and Vairin had been declared bankrupts, and that by certain proceeding in the bankruptcy court, and under its order, the mortgaged property had been sold free from incumbrance, and bought in by several persons who had liens on it, by whose order it was conveyed to the Factors' & Traders' Insurance Company, which held the other two notes secured by the mortgage. She further alleged that the effect of this sale was to extinguish the mortgage as to the notes held by that company, and all other liens but hers, and to make that company liable to her for the amount of these notes, with a first lien on the property mortgaged. That the sale under the order in bankruptcy was not binding on her, because she was not made a party to the proceeding and had no notice of it, while it was binding on all the other lienholders whose liens were thereby discharged, leaving hers a paramount lien on the property. The insurance company and the other parties interested answered and insisted that Mrs. Murphy was bound by the bankruptcy sale because she was represented by T. A. Archer, who, as her agent, and having possession of her notes, took part in all the proceedings, and in that character was one of the purchasers, and joined in directing the conveyance to be made to the insu ance company. They admit her interest in the property in proportion to the extent of her notes, but set up certain expenses and charges on it paid by them for taxes, necessary improvements, and prior liens, to the amount of $11,454.83, as a superior claim to her notes. The testimony of Mr. Archer shows that he understood himself as acting for Mrs. Murphy, having as her agent possession of the two notes now in suit. That in that character and no other he took part in all the proceedings for the sale and purchase of the mortgaged property, and that during that time he had frequent conversations with her and explained to her what was going on, to which she made no dissent. But he does not say that she at any time, in express terms, authorized him to represent her in the sale or in the proceedings connected with it. The record of those proceedings, on the contrary, affirm that Mr. Archer acted for Marshall J. Smith & Co., of which company he was a member, and no mention of Mrs. Murphy is found in the record of that case, though both Archer and Smith have sworn they had no real interest in the matter, and only appeared as representing Mrs. Murphy's notes then in their possession, and with her assent. The supreme court of Louisiana, on appeal, held that Mrs. Murphy was not a party to the proceeding in bankruptcy, and was in no sense bound by the sale of the mortgaged property, but that the sale had the effect of extinguishing and satisfying all the liens on the property but hers, and left her notes the only lien on it. While it held that the insurance company was not bound for the debt in personam, it decreed that unless the company paid her debt, with interest, costs, and 5 per cent. attorney's fees, the property should be sold to raise the money, and denied the company's claim for taxes and other necessary outlays for the benefit of the property.

Counsel for defendant in error deny the jurisdiction of this court and move to dismiss the writ. But it is apparent that the only controversy in the case relates to the effect to be given to the sale under the order of the district court of the United States, to sell the mortgaged property free from incumbrance. Both parties assert rights under this order and sale. Plaintiffs in error assert that the sale as made was valid, and, being sold free from incumbrances, extinguished Mrs. Murphy's lien as well as others. Defendant asserts that it had the effect of discharging all other liens but hers, and thus gave her the exclusive, paramount lien on all the property so sold. Both the parties, therefore, rely upon rights under federal authority, and as the right of plaintiff in error was denied by the court the writ of error lies.

As regards the merits, it is impossible to shut one's eyes to the injustice of the decree. The plaintiffs in error, who were led to suppose that they were acting in concert with Mrs Murphy, or at least with the holders of her notes by her consent, join in purchasing the property for the benefit of all the lienholders and receive the title in trust for their common benefit. It is immediately necessary, to save it from loss, to pay taxes and other prior liens and to make improvements necessary to its preservation to the extent of...