In re Lukens

• Decision Date: 02 June 1905
• Docket Number: 1,741.
• Citation: 138 F. 188
• Parties: In re LUKENS.
• Court: U.S. District Court — Eastern District of Pennsylvania

138 F. 188

In re LUKENS.

No. 1,741.

United States District Court, E.D. Pennsylvania.

June 2, 1905

Edward H. Hall, for trustee.

J. F E. Hause, for mortgagee.

J. B McPHERSON, District Judge.

The undisputed facts in this case are as follows: Nathan Lukens the bankrupt, took title to a house and lot of ground on April 4, 1901, and his deed was recorded on that day. He borrowed $800 of the purchase money from Hannum Baldwin, and gave a mortgage therefor, but the mortgage was not recorded for more than two years. On September 29, 1903, Lukens was adjudged a voluntary bankrupt, and on October 16th a trustee was duly elected and qualified. On October 22d the mortgage was recorded. In March, 1904, Baldwin received a dividend of $266.86 out of the proceeds of personal property belonging to the bankrupt, the dividend having been declared on the bond accompanying the mortgage. In August following, the referee ordered the house and lot to be sold free of liens and incumbrances, and the trustee sold it in September for $925. Baldwin claimed to be paid the balance of his mortgage in full, and the referee sustained the claim, relying upon Mellon's Appeal, 32 Pa. 121, Britton's Appeal, 45 Pa 177, Tryon v. Munson, 77 Pa. 250, and McLaughlin v. Ihmsen, 85 Pa. 364. The reasons for his decision are thus given in the report:

'The foregoing authorities clearly indicate the nature and effect of a mortgage, whether recorded or not, and that it is not merely a security for a debt, but a conveyance of the mortgagor's title and estate in the land covered by the mortgage. They show further that, though unrecorded, a mortgage is perfectly good and lawful, not only against the mortgagor himself, but also against all others except bona fide purchasers for value and lien creditors without notice. The act of assembly of May 19, 1893 (P.L. 108), seems to have an attempt to change the law, as it had been, so as to let in general creditors of the grantor or bargainor. But the Supreme Court in Davey v. Ruffell, 162 Pa. 443, 29 A. 894, held that this attempt was abortive, and that the act is to be read as though the word 'creditors' was not in it.

'At the time Mr. Lukens was adjudged bankrupt, the estate he had in the mortgaged premises was his equity of redemption, and nothing more; and that was the whole and only estate therein that was cast upon the trustee in bankruptcy, or which he had power to sell under the order of the referee. It is true that the order directed him to sell the property freed and discharged from the liens and incumbrances thereon, but that was for the convenience of bidders, and did not affect the rights of the mortgagee in any way.

'I am aware that in a recent case in bankruptcy, Re John A. Thorp (D.C.) 12 Am.Bankr.Rep. 195, 130 F. 371, it was held that section 70a gives to the trustee only the rights of the bankrupt, but that subdivisions 'a' and 'd' of section 67 invalidate an unrecorded lien, and thus practically place the trustee in the position of an innocent purchaser for value without notice. If this is to be understood as giving to the trustee a higher or greater title and estate in the mortgaged premises than the bankrupt himself had at the time he was adjudged bankrupt, then I must respectfully decline to follow it. It is inconceivable that the trustee can be vested with any higher or greater title and estate than the bankrupt held at the time of adjudication. The true interpretation of the bankrupt law in this respect, as I view it, is to be found in Re Kellogg (D.C.) 7 Am.Bankr.Rep. 270, 112 F. 52, and cases therein referred to.

'After careful consideration of the whole question, I am of opinion that the claim made on behalf of the mortgagee should be allowed; that he is legally and equitably entitled to priority, and to be paid in full out of the proceeds of sale of the mortgaged premises.'

It is undoubtedly true that two apparently conflicting lines of decision by the Supreme Court of Pennsylvania concerning the nature and effect of a mortgage may be found without difficulty, one line being represented by the cases that are cited in the referee's report, which speaks of a mortgage as being 'an interest or estate in the land itself, capable of enjoyment, and enabling the mortgagee to grasp and hold it actually, and not a mere lien or potentiality to follow it by legal process and condemn it for payment. The land' (it is further said) 'passes to the mortgagee by the act of the party himself, and needs no legal remedy to enforce the right. But a lien vests no estate, and is a mere incident of the debt, to be enforced by a remedy at law, which may be limited. ' Tryon v. Munson, supra. The other line of cases regards a mortgage as essentially a security for the payment of money, passing no estate that can be taken for a debt of the mortgagee, but conferring a lien merely, although it is a lien that may be enforced (among other remedies) by an action of ejectment, under which the mortgagee may obtain possession of the land and may apply the net profits to the payment of the mortgage debt. Thus, in Rickert v. Madeira, 1 Rawle, 328, Mr. Justice Rogers, delivering the opinion of the court, said, inter alia:

'That a mortgage is but a chose in action, a mere evidence of debt, is apparent from the whole current of decisions. A devise of a man's personal estate carries with it all his mortgages. A mortgage may be released by an instrument not under seal, and an assignment of the bond, which usually accompanies the mortgage, transfers the right to the mortgage itself; for whatever will give the money secured by the mortgage will carry the mortgaged premises along with it. The forgiving the debt, although by parol, will draw the land after it as a consequence. The whole result of the cases is that a mortgage, although in form a conveyance of land, is in substance but a security for the payment of money; and the debt being paid, or in any manner extinguished, the mortgagee becomes a trustee for the mortgagor.' In Presbyterian Corporation v. Wallace, 3 Rawle, 109, where the subject is elaborately considered by Chief Justice Gibson, it is said, on star page 128:

'In form, a mortgage is certainly a conveyance; but it is unquestionably treated at law here, in the way it is treated in equity elsewhere, as a bare incumbrance, and the accessory of a debt. As between the parties it is a conveyance, so far as is necessary to enforce it as a security. As regards third persons, the mortgagor is the owner, even of the legal estate. This distinction, which, if attended to, will be found to reconcile the apparently jarring dicta of the judges, is as firmly established by the practice and decisions of the courts in Pennsylvania as any other in the law. If the mortgagee had the title for any other purpose than to afford him a remedy, it would not be easy to account for the absence of all the incidents of his supposed ownership; yet his estate, if such it be, certainly cannot be set up as outstanding to bar an ejectment by the mortgagor, or an action of trespass, or a proceeding to obtain compensation for a privilege under a statutory license; nor is it subject to taxation, or lien by judgment, or

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