In re Davis, 26924.

• Decision Date: 06 January 1936
• Docket Number: No. 26924.,26924.
• Citation: 13 F. Supp. 221
• Parties: In re DAVIS.
• Court: U.S. District Court — Eastern District of New York

13 F. Supp. 221

In re DAVIS.

No. 26924.

District Court, E. D. New York.

January 6, 1936.

Elmer P. Smith, of Port Jefferson, N. Y. (Winston E. Barrow, of New York City, of counsel), for First Nat. Bank of Port Jefferson, Melancthon K. Hawkins, and Elmer P. Smith.

George W. Tucker, of New York City, for petitioning debtor.

BYERS, District Judge.

This is a debtor proceeding under section 75 of the Bankruptcy Act, as amended (11 U.S.C.A. § 203), touching agricultural compositions and extensions.

The debtor filed on September 28, 1934; his attempted composition failed and thereafter four motions were made in respect of four mortgages under foreclosure prior to the date of filing, to procure the lifting of as many stays of further proceedings in the state court touching those mortgages, on the ground that subdivision (s) of said section 75 (the so-called Frazier-Lemke Act, 48 Stat. 1289) was unconstitutional.

Decision of those motions was withheld, on consent of both attorneys, when it became apparent that the Supreme Court would decide the question, which it did on May 27, 1935, holding the subdivision to be in violation of the Fifth Amendment to the Constitution. Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 55 S. Ct. 854, 79 L.Ed. 1593, 97 A.L.R. 1106.

Thereafter the motions were granted and, by several orders bearing date of July 1, 1935, the stays were vacated and the several plaintiffs permitted to proceed with their foreclosure suits. For convenience, the actions will be referred to as numbers 1, 2, 3, and 4.

The status of each will be described presently.

On September 6, 1935, the debtor filed his amended petition, reciting his failure to effect a composition or extension of his debts, and on that day procured an order to show cause directed to the plaintiffs in the four cases, wherein the vacation of the said orders of July 1, 1935, is sought, and special relief with reference to action No. 1 is prayed.

The motion was argued on September 18th and, by stipulation, consideration was adjourned until November 8th, when all briefs were to be filed.

The debtor relies upon subdivision (s) of section 75 of the Bankruptcy Act (11 U.S.C.A. § 203 (s), which became a law on August 28, 1935, being the "Frazier-Lemke Act" in its present form.

The actions in question must be separately listed.

Action No. 1. — This suit was instituted April 30, 1934, by the First National Bank of Port Jefferson against the debtor, to foreclose a mortgage for $8,000.00, made by the debtor on or prior to January 6, 1927, as to which there was default of interest and taxes, and had proceeded to judgment of foreclosure and sale on June 27, 1934; thereafter the debtor's first petition was filed, under the Frazier-Lemke Act of June 28, 1934, 48 Stat. 1289.

When the stay incident to the proceeding so begun was lifted, and the order of July 1, 1935, was signed and filed, there was no legal barrier to the further prosecution of that action. Accordingly, the property was advertised for sale at public auction pursuant to law; the sale was duly held on August 24, 1935, and on that day the referee executed, acknowledged and delivered his deed to the purchaser, who was the plaintiff in that action and whose bid was $9,000.00.

The deed was recorded on August 26, 1935, and, while the motion papers are not clear on the subject, it is assumed that the purchaser was let into possession. If that is an erroneous assumption, the facts to the contrary should be made to appear.

Assuming such to be the fact, the title of the debtor to the property described in that mortgage was completely divested, and on August 24, 1935, the purchaser at the foreclosure sale became the owner of an indefeasible title (unless there was some infirmity in the foreclosure action itself, which has not been asserted in this proceeding) and the debtor had no title, interest, estate, or equity of redemption over which this court could exert jurisdiction in obedience to subdivision (n) of section 75 of the Bankruptcy Act as enacted August 28, 1935 (11 U.S.C.A. § 203 (n).

Subdivision (n) as it existed before the amendment of August 28, 1935, read as follows:

"(n) The filing of a petition pleading for relief under this section shall subject the farmer and his property, wherever located, to the exclusive jurisdiction of the court. In proceedings under this section, except as otherwise provided herein, the jurisdiction and powers of the court, the title, powers, and duties of its officers, the duties of the farmer, and the rights and liabilities of creditors, and of all persons with respect to the property of the farmer and the jurisdiction of the appellate courts, shall be the same as if a voluntary petition for adjudication had been filed and a decree of adjudication had been entered on the day when the farmer's petition or answer was filed." 47 Stat. 1470.

On July 1, 1935, this court had surrendered its exclusive jurisdiction over the debtor and his property, to the extent reflected in the terms of the order to which reference has been made, whereby continuance of the foreclosure was permitted, since there was then no reason existing to the contrary. That order was not appealed, nor has an effort since been made to show that it was invalid in any respect.

With reference therefore to this particular action, it is not apparent how this court possesses the power to order the sale in foreclosure held on August 24, 1935, to be vacated or set aside, or otherwise assailed.

Action No. 2. — The same bank is the plaintiff in this cause, and consents that the motion be granted, and that the order of July 1, 1935, in that cause, be vacated and set aside.

That action was started May 2, 1934, to foreclose a mortgage on other property, made by the debtor on or before June 3, 1930. Judgment of foreclosure and sale was duly entered on June 27, 1934.

That action was stayed, and the stay lifted in all respects as stated with reference to action No. 1, but apparently there has not been a sale of any kind pursuant to the judgment.

It is stated in the brief filed in opposition to this motion under Point III as follows:

"The First National Bank of Port Jefferson consents to the vacating of the said order of this Court dated July 1st, 1935, permitting the mortgagees (sic) to sell their respective properties with respect to action Number 2, foreclosing it's mortgage on the Petitioner's `Home Place.'"

Accordingly the motion as to this action No. 2 is granted on consent, but without prejudice to the right of the mortgagee hereafter to seek any relief of which it may be advised in connection with that foreclosure suit, and the order to be entered hereon shall so provide.

Action No. 3. — This foreclosure suit was instituted March 19, 1934, by Elmer P. Smith as executor of Blydenburgh, deceased, to foreclose a mortgage for $2,000.00 dated on or about May 27, 1930, made by the debtor to the plaintiff as such executor.

Default in the payment of interest from the date of the mortgage is alleged, as well as non-payment of taxes for all of the years embraced between the dates given.

The plaintiff duly recovered judgment of foreclosure and sale in the county court of Suffolk county on August 10, 1934, and the property was duly advertised for sale on October 27, 1934.

This motion to vacate that order is based upon the rights asserted by the debtor to have been created in his favor by the new subsection (s) of section 75, approved August 28, 1935 (11 U.S.C.A. § 203 (s).

There is no affidavit in opposition to the motion, but it is gathered, from the brief filed in that behalf, that no attempt has been made to conduct a sale pursuant to the said judgment recovered and entered on August 10, 1934.

Action No. 4. — This foreclosure suit was instituted April 2, 1934, by Melancthon K. Hawkins to foreclose a mortgage for $3,000.00 made by the debtor to the plaintiff on August 1, 1926, and payable in three years; apparently $150.00 was paid on account of principal, and default in interest started on February 1, 1931, and continued until the date of bringing suit, and a failure to pay taxes for the years 1931, 1932 and 1933 is said to have occurred, and there is no denial.

In all other respects, the recitals of fact respecting action No. 3 apply to this.

As to these two actions therefore, the question for decision is whether the new law constituting subsection (s) of section 75 of the Bankruptcy Act is constitutional.

The first inquiry is whether the lapses pointed out in Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 55 S.Ct. 854, 79 L.Ed. 1593, 97 A.L.R. 1106, with respect to the prior statute have been avoided.

The rights taken from the mortgagee in violation of the Constitution, as listed by the court in that case, were:

1. The right to retain the lien until the indebtedness thereby secured was 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 fair 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.

The foregoing were stated with reference to the rights of a mortgagee under the laws of Kentucky. They apply with equal force to New York law.

The new subsection (s) became effective August 28, 1935, as stated. It has to do with the debtor's status, if his proposed composition fails (as in this case).

1. He may have all of his property appraised, and obtain from the referee an order setting aside to...