Wright v. Vinton Branch of Mountain Trust Bank of Roanoke, Va
| Decision Date | 29 March 1937 |
| Docket Number | No. 530,530 |
| Citation | 81 L.Ed. 736,112 A.L.R. 1455,300 U.S. 440,57 S.Ct. 556 |
| Parties | WRIGHT v. VINTON BRANCH OF MOUNTAIN TRUST BANK OF ROANOKE, VA., et al. * |
| Court | U.S. Supreme Court |
[Syllabus from pages 440-442 intentionally omitted] Messrs. Samuel S. Lambeth, Jr., of Bedford, Va., Elmer McClain and William Lemke, of Washington, D.C., for petitioner.
[Argument of Counsel from pages 442-450 intentionally omitted]
Mr. John Srickler, of Roanoke, Va., pro hac vice, by special leave of court.
Mr. T. X. Parsons, of Roanoke, Va., for respondents.
[Argument of Counsel from Pages 450-453 intentionally omitted]
The question for decision is whether section 75, subsection (s), of the Bankruptcy Act, as amended by the new
Frazier-Lemke Act, August 28, 1935, c. 792, 49 Stat. 943—945, 11 U.S.C.A. § 203(s), is constitutional. In this case, the federal court for Western Virginia (see In re Sherman (D.C.) 12 F.Supp. 297) and the Circuit Court of Appeals for the Fourth Circuit (85 F.(2d) 973) held it invalid. Like decisions have been rendered in other circuits. Lafayette Life Insurance Co. v. Lowmon, 79 F.(2d) 887 (C.C.A.Seventh Circuit); United States National Bank of Omaha v. Pamp, 83 F.(2d) 493 (C.C.A.Eighth Circuit). In the Fifth Circuit the legislation was sustained. Dallas Joint Stock Land Bank v. Davis (C.C.A.) 83 F.(2d) 322. Because of this conflict and the importance of the question, we granted certiorari. 299 U.S. 537, 57 S.Ct. 312, 81 L.Ed. —-.1
Wright, a Virginia farmer, gave in 1929 a mortgage deed of trust of his farm to secure a debt now held by the Vinton Branch of the Mountain Trust Bank. In March, 1935, he filed a petitioner under section 75 of the Bankruptcy Act as amended June 28, 1934, c. 869, 48 Stat. 1289.
When the proceedings were begun, the debt secured by the deed of trust had matured and was in default, and the trustee, at the request of the beneficiary, had advertised the property for sale pursuant to the terms of the deed of trust and the provisions of the Virginia Code. The debtor's petition prayed, among other things, 'that all proceedings against him by way of pending and advertised foreclosures of his farming lands, or by other methods contrary to the provisions' of the Act be stayed. The petition, 'appearing to be in proper form and to have been filed in good faith,' was referred to the Conciliation Commissioner as required by section 75, 11 U.S.C.A. § 203. On July 27, 1935, the debtor made a proposal for composition; but it was not accepted by the mortgage creditor. On October 8, 1935, Wright filed an amended petition under subsection (s) of section 75 as amended by the new Frazier-Lemke Act, 11 U.S.C.A. § 203(s); and asked to be adjudged a bankrupt and to have all the benefits of the provisions of said subsection (s) as so amended and approved August 28, 1935.
An order was entered adjudging Wright a bankrupt and again referring the matter to the Conciliation Commissioner. Thereafter, the Vinton Branch of the Mountain Trust Bank moved in the District Court that the proceedings before the Commissioner be terminated and 'that this case be dismissed upon the ground that subsection (s) of said Act is unconstitutional in that it deprives said creditor of its property without due process of law and that the debtor is not entitled to pursue the remedies and privileges granted therein.' On January 8, 1936, that motion was granted; all proceedings on the bankrupt's petition were terminated; and his petition was dismissed. It is that order, affirmed by the Court of Appeals, which is here for review. Both of the lower courts held that, since the applicable rights of a mortgagee in Kentucky and of the beneficiary under a mortgage deed of trust in
Virginia are substantially the same, our decision 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, required that subsection (s) be held unconstitutional.
First. The mortgagee claims that the legislation is void on its face. It challenges the power of Congress to confer upon courts authority to grant to a mortgagor, under any circumstances, any of the relief provided for in subsection (s) of the new Frazier-Lemke Act. There has been no order granting a stay under paragraph 2 of subsection (s). But the suit is not premature; for the fact that no stay order has been entered does not imply that an actual constitutional controversy is not presented. The petitioner asserts a right to pursue proceedings provided by a federal statute, and that right has been denied him on grounds of the alleged invalidity of the statute. Before the motion to dismiss was made, the District Court had entered its order adjudging petitioner a bankrupt, and referring the matter to the Conciliation Commissioner for further proceedings under section 75(s). The entry of the order of reference initiated proceedings designed to move, through the appointment of appraisers, the appraisal, and the referee's order recognizing the debtor's right to possession, to the grant of the stay by the court. Under the Act no further affirmative action by petitioner precedent to his obtaining the stay was necessary. The mortgagee was not obliged to delay his challenge to the validity of the stay and its essential incidents until these officials had complied with the mandatory provisions of the Act. But while we must decide whether the challenged sub-section is constitutional, we refrain from deciding questions suggested which may arise later in the course of its administration.
Second. The decision in the Radford Case did not question the power of Congress to offer to distressed farmers the aid of a means of rehabilitation under the bankruptcy clause. The original Frazier-Lemke Act was there held invalid solely on the ground that the bankruptcy power of
Congress, like its other great powers, is subject to the Fifth Amendment; and that, as applied to mortgages given before its enactment, the statute violated that Amendment, since it effected a substantial impairment of the mortgagee's security. The opinion enumerates five important substantive rights in specific property which had been taken. It was not held that the deprivation of any one of these rights would have rendered the Act invalid, but that the effect of the statute in its entirety was to deprive the mortgagee of his property without due process of law. The rights enumerated were (295 U.S. 555, at pages 594, 595, 55 S.Ct. 854, 865, 79 L.Ed. 1593, 97 A.L.R. 1106):
(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 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.'
In drafting the new Frazier-Lemke Act, its framers sought to preserve to the mortgagee all of these rights so far as essential to the enjoyment of his security. The measure received careful consideration before the committees of the House and the Senate. Amendments were made there with a view to ensuring the constitutionality of the legislation recommended. The Congress concluded, after full discussion, that the bill, as enacted, was free from the objectionable features which had been held fatal to the original Act.
Third. It is not denied that the new Act adequately preserves three of the five above enumerated rights of a mortgagee. 'The right to retain the lien until the indebtedness thereby secured is paid' is specifically covered by the provisions in paragraph 1, that the debtor's possession, 'under the supervision and control of the court,' shall be 'subject to all existing mortgages, liens, pledges, or encumbrances,' and that: 'All such existing mortgages, liens, pledges, or encumbrances shall remain in full force and effect, and the property covered by such mortgages, liens, pledges, or encumbrances shall be subject to the payment of the claims of the secured creditors, as their interests may appear.'2
'The right to realize upon the security by a judicial public sale' is covered by the provision in paragraph 3 that at the termination of the stay:
'* * * 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.'3
The new Act does not in terms provide for 'The right to protect its (the mortgagee's) interest in the property by bidding at such sale whenever held.' But the committee reports and the explanations given in Congress make it plain that the mortgagee was intended to have this right.4 We accept this view of the statute.
Fourth. The claim that subsection (s) is unconstitutional rests mainly upon the contention that the Act denies to a mortgagee the 'right to determine when such sale shall be held, subject only to the discretion of the court.' The assertion is that the new Act in effect gives to the mortgagor the absolute right to a three-year stay; and that a three-year moratorium cannot be justified. The three-year stay is specified in the following provisions:
'When the conditions set forth in this section (Section 75) have been complied with, the court shall stay all judicial or official proceedings in any court, or under the direction of any official, against the debtor or any of his property, for a period of...
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