In re Young, 5431.

• Decision Date: 21 October 1935
• Docket Number: No. 5431.,5431.
• Parties: In re YOUNG.
• Court: U.S. District Court — Southern District of Illinois

12 F. Supp. 30

In re YOUNG.

No. 5431.

District Court, S. D. Illinois, N. D.

October 21, 1935.

Ira J. Covey, Wayne H. Mathis, and Ira J. Covey, Jr., all of Peoria, Ill., for debtor.

B. M. Chiperfield, Claude E. Chiperfield, and Robert B. Chiperfield, all of Canton, Ill., for objecting creditors.

Before BRIGGLE and MAJOR, District Judges.

PER CURIAM.

On September 4, 1934, William W. Young, hereinafter referred to as the debtor, filed his petition herein, under section 75 of the Bankruptcy Act, as amended (11 USCA § 203), alleging that he is a farmer and primarily engaged in farming operations, that he is insolvent and unable to meet his debts as they mature, and averring that he desires to effect a composition or extension of time to pay his debts under the terms of said section. Attached to said petition are his schedules of assets and liabilities, showing a total indebtedness of $16,688.38 and total assets of the value of $10,318.

He says in his petition that the farm in question, on which he places a value of $10,000, is encumbered by a first lien in the principal amount of $10,000 and a second lien in excess of $7,000, and that said first lien was at the time of filing his petition herein in the process of foreclosure; that decree for foreclosure had been entered on May 22, 1934, by the circuit court of Fulton county, Ill.; that said premises were sold under such decree on June 28, 1934, to J. W. Chapman and others, the holders of the notes secured by said lien, and hereinafter referred to as the objectors. A deficiency decree was rendered against the debtor and a receiver appointed by the state court, who qualified and assumed control over the property in question.

On September 4, 1934, debtor's petition was approved by this court as properly filed and was referred to the conciliation commissioner of this court for Fulton county, and on the same date upon petition of the debtor an order was entered restraining further proceedings in said foreclosure suit until debtor's petition be disposed of and restraining various persons from interfering with the possession of said real estate by the debtor.

The matter was duly heard by the conciliation commissioner, and on November 2, 1934, the report of the conciliation commissioner was filed herein, showing a failure of composition.

On November 22, 1934, debtor filed his amended petition under the provisions of the then existing subsection (s) of said section 75 (as added by Act June 28, 1934), asking that he be adjudicated a bankrupt under the terms of subsection (s), and he was, thereafter, duly adjudicated a bankrupt and the cause was referred to one of the referees in bankruptcy of this court. The referee proceeded with the administration of the debtor's estate, and a trustee was duly appointed and qualified and was so acting when the Supreme Court held such subsection (s) unconstitutional.

Thereafter, on June 4, 1935, the objectors appeared specially herein and filed their motion before the referee, asking that the proceedings be dismissed in so far as the referee had assumed jurisdiction over the real estate in question, as such subsection (s) was in violation of the Fifth Amendment to the Constitution. This motion was allowed by the referee, who entered an order finding that on account of subsection (s) having been held unconstitutional by the Supreme Court, he no longer had jurisdiction over the said real estate; and such jurisdiction as he had assumed was relinquished and remanded to the circuit court of Fulton county, Ill.

On August 28, 1935, the present subsection (s), 11 USCA § 203 (s), became a law, and thereafter on September 9, 1935, the debtor filed his petition herein, alleging the various steps heretofore taken, and praying that the order of the referee, remanding the jurisdiction over said real estate to the circuit court of Fulton county, be set aside and that this court reassume exclusive jurisdiction over said real estate and that the debtor be granted the relief provided for in said amendment of August 28, 1935.

To this petition the objectors, by their special appearance, interpose various constitutional objections, and ask that this court decline further to assume jurisdiction under the petition of September 9, 1935, and that the same be dismissed. This inquiry will be limited, in the main, to a determination of whether the new subsection (s) meets the test imposed by the Supreme Court's decision in Louisville Joint Stock Land Bank v. Radford, 295 U. S. 555, 55 S. Ct. 854, 79 L. Ed. ___, 97 A. L. R. 1106, opinion May 27, 1935.

In that case the court concluded that the original subsection (s) of section 75 of the Bankruptcy Act, which it there had under consideration, had taken from the mortgagee bank the following property rights recognized by the law of Kentucky:

1. The right to retain the lien until the indebtedness thereby secured is paid.

2. The right to realize upon the security by a judicial public sale.

3. The right to determine when such sale shall be held, subject only to the discretion of the court.

4. The right to protect its interest in the property by bidding at such sale whenever held, and thus to assure having the mortgaged property devoted primarily to the satisfaction of the debt, either through receipt of the proceeds of a paid competitive sale or by taking the property itself.

5. The right to control, meanwhile, the property during the period of default, subject only to the discretion of the court, and to have the rents and profits collected by a receiver for the satisfaction of the debt.

It may be observed that the property rights of a mortgagee in Kentucky, there referred to, are likewise accorded a mortgagee under the law of Illinois. Succinctly, therefore, the question is: Are any of such property rights of the mortgagees, in the instant case, now threatened by the operation of the new subsection (s)? It is argued with plausibility that the first, second, and fourth of such property rights have by the terms of the new act been accorded the mortgagee. It is also contended that the third — the right to determine when a judicial sale of the mortgaged property shall be held, subject only to the discretion of the court — is now accorded the mortgagee by virtue of the provisions of paragraph 3 of new subsection (s), 11 USCA § 203 (s) (3). This paragraph provides that: "At the end of three years, or prior thereto, the debtor may pay into court the amount of the appraisal of the property of which he retains possession, including the amount of encumbrances on his exemptions, up to the amount of the appraisal, less the amount paid on principal: Provided, That upon request of any secured or unsecured creditor, or upon request of the debtor, the court shall cause a reappraisal of the debtor's property, or in its discretion set a date for hearing, and after such hearing, fix the value of the property, in accordance with the evidence submitted, and the debtor shall then pay the value so arrived at into court, less payments made on the principal, for distribution to all secured and unsecured creditors, as their interests may appear, and thereupon the court shall, by an order, turn over full possession and title of said property, free and clear of encumbrances to the debtor: Provided, That upon request in writing by any secured creditor or creditors, the court shall order the property upon which such secured creditors have a lien to be sold at public auction. The debtor shall have ninety days to redeem any property sold of such sale * * *."

It is argued by the debtor that the second proviso of this paragraph gives the mortgagee the right to demand a sale of the mortgaged premises at any time after the court takes jurisdiction and therefore meets the constitutional objections pointed out by the Supreme Court in the Radford Case. With this reasoning we are not in accord. To place such a construction on the language of paragraph 3 would do violence to the whole purpose of the act. Neither do we think that the congressional debates on the subject lend support to any such theory. While the language of the act is inapt and uncertain, it undoubtedly was the purpose of Congress to give the secured creditor the right to demand a public sale of the mortgaged property only when the preceding provisions had expended their force. If and when the debtor might evidence a purpose to pay into court the appraised price of the land, then and then only the secured creditor might, if he saw fit, ask for a new appraisement with the further proviso that he might, if he should so elect, demand a public sale. We think, as a matter of construction of the act, that the time of such sale is in no way dependent upon the wish of the secured creditor, but must await the time during the three-year period when the debtor shall choose to act. Surely Congress, in its attempt at relief of the distressed farmer, did not intend to bring about the anomalous result of reducing his redemption...