Bernards v. Johnson, 2

• Decision Date: 10 November 1941
• Docket Number: No. 2,2
• Parties: BERNARDS et al. v. JOHNSON et al. Re
• Court: U.S. Supreme Court

314 U.S. 19

62 S.Ct. 30

86 L.Ed. 11

BERNARDS et al.

v JOHNSON et al.

No. 2.

Reargued Oct. 14, 1941.

Decided Nov. 10, 1941.

Motion to Recall Mandate Denied Mar. 2, 1942.

See —- U.S. —-, 62 S.Ct. 792, 86 L.Ed. —-.

Messrs. Wm. Lemke, of Fargo, N.D., and Martin J. Bernards, pro se, for petitioners.

Messrs. William L. Brewster and H. G. Platt, both of Portland, Or., for respondent.

Mr. Justice ROBERTS delivered the opinion of the Court.

We took this case because it presents important questions of appellate practice under § 75¹ of the Bankruptcy Act.

The petitioners, who are adjudicated bankrupts, attack an order and a decree of the District Court, which were affirmed by the Circuit Court of Appeals. ² The respondents are mortgagees who purchased property of the bankrupts at foreclosure sales, and the trustee in bankruptcy.

The petitioners were owners of land in Oregon. April 12, 1933, the respondent, Collins brought foreclosure proceedings on a mortgage which was a first lien on a portion of the land. April 6, 1934, two of the respondents, Johnson and United States National Bank (herein, for the sake of brevity, referred to as Johnson) instituted a foreclosure suit under a mortgage which was secured by a pledge of personalty and was also a first lien on all the land not covered by the Collins mortgage, and a second lien on the tract mortgaged to Collins. July 11, 1934, a state court entered a decree of foreclosure in the latter suit.

August 10, 1934, the petitioners jointly applied to the District Court, as farmers, for composition or extension of their indebtedness. On the same day the court restrained, until further order, any sale under the Johnson mortgage, and referred the cause to a conciliation commissioner. That officer having reported, on the reference and on a re-reference, failure to agree on a composition or extension, the petitioners, December 19, 1934, reciting the failure and their desire to have the benefits of the bankruptcy act, and particularly of subsection § of § 75 as it then stood,³ prayed that 'they and each of them be adjudged by this court to be bankrupts, within the purview of said Acts of Congress.' An adjudication as to each petitioner was entered, and, December 20, 1934, the case was referred to a referee.

February 8, 1935, the bankrupts petitioned for the appointment of appraisers and to be allowed to retain possession of their property, as provided in subsection s.

February 18, 1935, the restraining order of August 10, 1934, was vacated as superfluous, inasmuch as subdivi- sions a to r of § 75 are self-executing.⁴ May 21, 1935, appraisers were appointed. May 27, 1935, this court held subsection § unconstitutional.⁵

June 28, 1935, the petitioners applied for a re-reference of their original petition for composition or extension to a conciliation commissioner. The application was denied by the court on the ground that they had been adjudged bankrupts and that their bankruptcy proceeding was then pending before a referee. No appeal was taken.

June 29, 1935, Johnson purchased the mortgaged realty and the pledged personalty at a sale in the Johnson foreclosure suit, held pursuant to order of the state court, and the sale was confirmed July 20, 1935. The petitioners appeared and opposed confirmation, but did not appeal from the decree.

August 26, 1935, a sale was made to Collins pursuant to a foreclosure decree entered by the state court, July 9, 1935, under the Collins mortgage, and the sale was confirmed September 16, 1935.

A new subsection s, to replace that held unconstitutional, having been adopted August 28, 1935,⁶ the petitioners, September 30, 1935, reciting their adjudication as bankrupts and the reference of the case to a referee, and, relying on the newly adopted subsection s, which authorizes conciliation commissioners to act as referees in § 75 cases subsequent to adjudication, moved the court to recall the proceedings from the referee. By order of even date the prior reference was recalled, and the referee was directed to remit the record to the court.

Although under the Oregon law a purchaser at foreclosure sale is entitled to possession of the land from the day of sale,⁷ the debtors remained in possession. To oust them Johnson applied to the state court for a writ of assistance. October 3, 1935, the bankruptcy court, at petitioners' instance, temporarily restrained the sheriff from executing any such writ.

By order of October 15, 1935, the court, reciting the adjudication of December 19, 1934, referred the bankruptcy case to a conciliation commissioner.

December 18, 1935, the court dissolved the temporary restraining order against the sheriff, for the reasons that the property had been sold pursuant to an execution in the Johnson foreclosure and the sale duly confirmed; that, when these steps were taken, the state court had jurisdiction acquired prior to the commencement of the proceedings under § 75; and that the execution of the writ of assistance would not, therefore, interfere with any property of the bankrupt. No appeal was taken from the order, the writ of assistance issued, and the petitioners were dispossessed January 25, 1936.

The period of redemption from the sale in the Johnson foreclosure expired June 29, 1936, and, on July 1, a sheriff's deed was delivered.

July 15, 1936, the bankrupts filed with the conciliation commissioner a petition reciting the institution of the extension proceeding, its futility, the consequent adjudication of bankruptcy, the sheriff's sale under the Johnson mortgage, and its confirmation. They alleged that they were farmers within § 75 as amended August 28, 1935, and were, under the terms of the statute, entitled to the possession of the mortgaged property and its proceeds; that Johnson was endeavoring to exercise control of and ex- clude them from the property. They prayed an order granting them immediate possession, control, and management of the real estate, and restraining the sheriff, Johnson, and Collins, 'from transferring without purchase of said property in accordance with the Frazer-Lemke Act as amended' (sic); and for a further order 'specifically extending the period of redemption as provided' in the Act.

Johnson filed an answer and cross-petition which is not included in the transcript of record certified to this court. The debtors replied asking that the answer be dismissed; that they be accorded the full benefits of the Act, that the sheriff's deed be cancelled, and that Johnson be required to account for all crops harvested and property removed from the land.

August 8, 1936, the commissioner found that the bankrupts had never petitioned under the new subsection § for appraisal, the setting aside of their exempt property, and for possession of their property under the control of the court; that appraisers had never been appointed or the property appraised; that no order in respect of exemptions or for possession by the bankrupts had ever been made; that no stay order had been entered; that no rental had ever been fixed; that no order of any sort had been made under the amended subsection except the orders recalling the proceedings from the referee and referring them to the commissioner; that the bankrupts are not farmers within the definition of the Act; that on August 28, 1935, when the new subsection § took effect, they had only an equity of redemption in the lands, except for the tract covered by the Collins mortgage; and that the new subsection § was unconstitutional. He entered a decree to the effect that since June 29, 1935, the date of the foreclosure sale, the bankruptcy court had had no jurisdiction of the land then sold; that the new subsection § had no application to any of the land sold in fore- closure; that the bankrupts were not farmers within the meaning of the Act, and were not entitled to the benefits of the Act; that their petition should be denied; and that a trustee should be appointed to liquidate the estate.

The time fixed by standing rule of the District Court for petitioning for a review of a referee's order in bankruptcy is twenty days. No application was made within that time to have the order reviewed.

August 29, 1936, the creditors elected, and the commissioner thereupon appointed, the respondent, Loomis, trustee and, September 3, the commissioner entered an order approving his bond.

September 10, 1936, the year for redemption from the sale in the Collins foreclosure having expired, the sheriff delivered his deed to Collins as purchaser.

September 19, 1936, the bankrupts filed with the commissioner a 'notice of appeal' from the orders of August 29 and September 3. Treating the notice as a petition for review, the commissioner filed his certificate with the District Court.

Meantime administration of the estate proceeded as in ordinary bankruptcy and appraisers were appointed September 25, 1936. October 23 they filed an appraisement of the property of the bankrupts, not including that which had been sold in foreclosure.

December 15, 1936, the District Court entered a decree confirming the commissioner's orders of August 29 and September 3. No appeal was taken.

January 4, 1937, the bankrupts filed with the commissioner a petition reciting their adjudication as bankrupts, and praying that the commissioner proceed with the appraisal of their property; that he rescind the order of August 8, 1936; that he remove the trustee because the latter was not elected by the requisite majority in amount of unsecured creditors, and was an improper person; that the trustee be ordered to account for all property coming into his possession; and that the bankrupt's exemptions be set aside to them. They asked for other specific relief not necessary to detail, and for general relief. January 11, 1937, the commissioner ordered the petition dismissed, 'for the reason that all matters and things in said petition alleged have heretofore been considered upon petition filed by said...