323 F.2d 566 (4th Cir. 1963), 8955, Hallenbeck v. Penn Mut. Life Ins. Co.

Docket Nº:8955.
Citation:323 F.2d 566
Party Name:Richard Francis HALLENBECK and Gertrude D. Hallenbeck, Appellants, v. PENN MUTUAL LIFE INSURANCE COMPANY, Appellee.
Case Date:October 03, 1963
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

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323 F.2d 566 (4th Cir. 1963)

Richard Francis HALLENBECK and Gertrude D. Hallenbeck, Appellants,



No. 8955.

United States Court of Appeals, Fourth Circuit.

October 3, 1963

Argued June 11, 1963.

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Edwin M. Young, Roanoke, Va., for appellants.

Wilbur L. Hazlegrove, Roanoke, Va. (Hazlegrove, Shackelford & Carr, Roanoke, Va., on brief), for appellee.

Before BOREMAN and BRYAN, Circuit Judges, and WINTER, District Judge.

BOREMAN, Circuit Judge.

This appeal is from the November 28, 1962, order of the District Court of the United States for the Western District of Virginia directing the Referee in Bankruptcy to dissolve an injunction restraining The Penn Mutual Life Insurance Company, hereinafter called Penn Mutual, from foreclosing the lien of a deed of trust on real estate owned by debtors Richard and Gertrude Hallenbeck, husband and wife, as tenants by the entireties. Penn Mutual is the assignee of a negotiable promissory note secured by the above-mentioned deed of trust.

This deed of trust provides for monthly payments including principal and interest of $61.66 and additional amounts to be held in an escrow account to cover taxes and insurance, or total monthly payments of $74.00 or $75.00; further, in the event of default in said payments the holder of the note shall have the right to declare the entire unpaid balance of the secured indebtedness due and payable and cause the trustees thereunder to sell the real estate to satisfy the debt. The debtors, Hallenbecks, defaulted in the payment of three consecutive monthly installments and, on or about February 26, 1962, Penn Mutual exercised its right of acceleration and instructed the trustees to proceed to sell the property pursuant to the terms of the deed of trust.

However, on January 26, 1962, Richard Hallenbeck had filed his petition and schedules for a wage earner's plan under the provisions of Chapter XIII of the Bankruptcy Act; and the plan or arrangement for the payment of his debts, as thereafter confirmed by the Referee, provided for monthly payments of

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$150.00 to the trustee appointed by the Referee, from which fund the trustee was to pay $75.00 each month to Penn Mutual's agent, with the further provision that, for the first several months and before payments to other creditors, the trustee should apply the whole of the $150.00 as payments to the secured debt until the defaults were satisfied and thereafter to apply $74.00 a month to each current installment due on said debt. Neither Penn Mutual nor its agent participated in the meeting of creditors and neither accepted the plan as thus confirmed, their intention being to proceed with the proposed foreclosure.

Upon petition by Richard Hallenbeck, the Referee entered an order enjoining Penn Mutual's proposed foreclosure until the further order of the court, conditioning continuation of the injunction upon the debtor's substantial compliance with the confirmed wage earner's plan. Penn Mutual excepted to the ruling of the Referee and, upon petition to the District Court for review of the Referee's order, that court reversed and remanded the case to the Referee with directions that the injunction be terminated. While expressing some uncertainty as to the authority of the bankruptcy court, in any event, to enjoin such foreclosure proceedings, the District Court concluded that the injunction was improper because the property covered by the deed of trust was owned by the debtor and his wife as tenants by the entireties and the latter was not a party to the proceeding. In re Hallenbeck, D.C., 209 F.Supp. 263 (Oct. 1962).

Thereafter, Gertrude Hallenbeck, representing herself to be a wage earner, filed her petition and schedules for a plan under Chapter XIII of the Act. The two Chapter XIII proceedings were consolidated and a joint plan for the two debtors, substantially similar to the original plan of the husband, was confirmed by the Referee. The debtor, Richard Hallenbeck, thereafter moved the District Court, under the provisions of Rule 61, F.R.Civ.P., to set aside its former order directing that the injunction be dissolved and to enter, in lieu thereof, an order enjoining foreclosure. The District Court, however, denied Hallenbeck's motion and on November 28, 1962, entered an order again remanding the case to the Referee with directions that the injunction be terminated. In re Hallenbeck, D.C., 211 F.Supp. 604 (Nov. 27, 1962). It is from this order that the Hallenbecks have appealed.

In its second written opinion last above cited, the District Court held as a matter of law that a court of bankruptcy, in the exercise of jurisdiction conferred by Chapter XIII, has no power to enjoin the foreclosure of a deed of trust or mortgage on real estate in view of the provision of Section 606 of the Act, 11 U.S.C.A. § 1006, which specifically excludes from the definition of 'claims' cognizable under Chapter XIII any claims secured by estates in real property, and defines 'creditors' as those holding 'claims.' 1 The court reasoned that since the word 'claims' within the operation of Chapter XIII excludes claims secured by liens on real estate, the word 'property,' as used in Section 614 of the Act, 2 empowering the bankruptcy court in Chapter XIII proceedings to enjoin any proceeding to enforce any lien upon the 'property' of the debtor, was not intended to include real estate. We think that this holding of the District Court constituted error. There was no finding

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of fact by the court respecting the exercise of discretion on the part of the Referee under the particular circumstances of the instant case.

As pointed out by the court below, the only prior decision directly in point, dealing specifically with such injunctive power under Chapter XIII in a case where a creditor held a debt secured by an estate in real property, is In re Garrett, 203 F.Supp. 459 (N.D.Ala.1962). The District Court in its first opinion herein questioned the correctness of the Garrett decision, and in its second opinion unequivocally stated that Garrett had been erroneously decided.

In the Garrett case the debtor in a Chapter XIII proceeding owned a house and lot, subject to a mortgage. Prior to the first meeting of creditors, the Referee enjoined the mortgagee from proceeding with its proposed foreclosure, subject to the further orders of the court. The wage earner's plan, thereafter submitted and confirmed, provided for preferential status for the mortgagee who was to receive from the trustee a monthly payment in the same amount as required by the mortgage note. Garrett, the debtor, had tendered to the mortgagee the full amount of all arrearages at the time of confirmation of the plan, and there was a finding of fact by the Referee that Garrett owned an equity of redemption in the mortgaged property of substantial value above and beyond the balance due upon the mortgage debt. Further, upon petition by the mortgagee for review, it was found by the District Court that Garrett had faithfully made to the trustee the payments required by the plan, which payments were in the hands of the trustee and available to the mortgagee. The court there held that, in view of the provisions of Section 606 of the Act defining 'claims' for the purpose of Chapter XIII to exclude claims secured by real property and defining a 'creditor' as the holder of a 'claim,' the Referee erred in including the mortgagee in the debtor's plan and in requiring the mortgagee to participate therein as a method of payment of its debt, but the court further held that the issuance of the injunction was authorized by law and proper under the circumstances. It was ordered that the injunction be continued in effect but that the case be remanded to the Referee for modification of the debtor's plan so as to exclude the mortgagee from its provisions. The court in Garrett further provided that the injunction was, of course, limited to the period of the pendency of that case, and that during the effective period of the injunction nothing should be allowed to impair the security of the mortgagee. 3

We find the reasoning of the Garrett case persuasive in the case before us. Although Penn Mutual is not a 'creditor,' cannot file a 'claim' against debtors, and therefore may not be required to participate in the wage earner's plan, 4 it does not follow, as a matter of law, that the Referee erred in enjoining foreclosure. Jurisdiction to issue such an injunction is grounded independently and is not subject to the same restrictions as is the scope of the wage earner plan under Chapter XIII. Section 611 of the Bankruptcy Act (11 U.S.C.A. § 1011) provides for retention by the court of jurisdiction over any and all property of the debtor without any qualification whatever as to the

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character of the property. 5 Further, section 614 of the Bankruptcy Act (11 U.S.C.A. § 1014) specifically provides that, 'upon notice and for cause shown,' the court may enjoin or stay 'any proceeding to enforce any lien upon the property of a debtor.' 6 These provisions not only authorize, but require, that the court retain jurisdiction of any property, including, if such there be, an equity of redemption in real estate for the benefit of the estate of the debtor under Chapter XIII.

In In re Clevenger, 282 F.2d 756 (7th Cir., 1960), where a wage earner's plan under Chapter XIII assumed performance of the executory contracts of the debtor and contained the provision that 'secured debts held by creditors who accept the plan shall have priority over the unsecured debts and shall be dealt with severally and will be paid as proved and allowed,' and two creditors, each the holder of a conditional sales contract secured by an item of the debtor's personal...

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