Cowherd v. Phoenix Joint Stock Land Bank

• Citation: 99 F.2d 225
• Decision Date: 26 October 1938
• Docket Number: No. 11248.,11248.
• Parties: COWHERD v. PHŒNIX JOINT STOCK LAND BANK OF KANSAS CITY et al.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

99 F.2d 225 (1938)

COWHERD v. PHŒNIX JOINT STOCK LAND BANK OF KANSAS CITY et al.^*

No. 11248.

Circuit Court of Appeals, Eighth Circuit.

October 26, 1938.

W. A. Franken, of Carrollton, Mo., and William Lemke, of Washington, D. C., for appellant.

John F. Reinhardt and Frank P. Barker, both of Kansas City, Mo. (S. J. Jones and G. C. Jones, both of Carrollton, Mo., on the brief), for appellees.

Before GARDNER, SANBORN, and BOOTH, Circuit Judges.

BOOTH, Circuit Judge.

This is an appeal from two orders, one dated April 30, 1938, refusing to adjudge debtor a bankrupt and dismissing the proceedings as to the Phoenix Joint Stock Land Bank, one of his two secured creditors; and the other order, dated May 11, 1938, dismissing said cause on the motion of the Carrollton Investment Company, his other secured creditor. There were no unsecured creditors.

The proceedings involved herein were as follows: The debtor, Edgar Cowherd, of Carroll County, Missouri, filed his petition for composition or extension under Sec. 75 (a) to (r) of the Bankruptcy Act, 11 U.S.C.A. § 203 (a-r), on August 7, 1936, and on that day it was approved as properly filed, and was referred to the Conciliation Commissioner.

On November 10, 1936, an application was made by the debtor for an extension of time within which to work out a composition or extension with his creditors, and this was granted.

On February 6, 1937, the Conciliation Commissioner reported to the Court that the debtor's offer of composition and extension had been rejected by his creditors; and on February 6, 1937, the Court entered an order discharging the Conciliation Commissioner.

On February 6, 1937, the debtor filed his amended petition in the District Court praying to be adjudged a bankrupt under the Frazier-Lemke Act, Sec. 75(s) of the Bankruptcy Act, 11 U.S.C.A. § 203(s); and on February 12, 1937, the Phoenix Joint Stock Land Bank filed its motion to dismiss debtor's amended petition.

On February 13, 1937, an order was signed dismissing said amended petition and setting aside all orders restraining the Phoenix Joint Stock Land Bank, who held a deed of trust upon the land of debtor, from foreclosing said deed. Said amended petition was dismissed on the sole ground that Sec. 75(s) of the Bankruptcy Act was unconstitutional, and the Court reserved jurisdiction of the other grounds for dismissal.

At the time this order was entered, Subsection 75(s) had been declared unconstitutional as applied to the facts under consideration in the case at bar by both the Circuit Court of Appeals of the Eighth Circuit and the Fourth Circuit. U. S. National Bank of Omaha v. Pamp, 8 Cir., 83 F.2d 493; and Wright v. Vinton Branch of Mountain Trust Bank, 4 Cir., 85 F.2d 973.

Thereafter an appeal was taken from said order to this Court. The United States Supreme Court having in the meantime held the amendment of August 28, 1935, to the Frazier-Lemke Act constitutional (Wright v. Vinton Branch, 300 U.S. 440, 57 S.Ct. 556, 81 L.Ed. 736, 112 A.L.R. 1455), the Circuit Court of Appeals reversed the judgment of the lower Court and remanded the case for further proceedings. Cowherd v. Phoenix Joint Stock Land Bank, 8 Cir., 94 F.2d 329.

The mandate reversing said judgment was filed February 10, 1938.

On March 10, 1938, the debtor filed a motion to be adjudged a bankrupt under his amended petition, or, if the offer of composition and extension was insufficient, that the matter be re-referred to the Concilation Commissioner.

On March 11, 1938, the Phoenix Joint Stock Land Bank filed its amended and supplemental petition to dismiss debtor's amended petition ab initio, on the following grounds:

1. That the offer of compromise and extension did not include an equitable and feasible method of liquidation for the debtor or for his financial rehabilitation, and was not for the best interest of his creditors, and constituted an attempt to impair and reduce the first and prior lien of the petitioner.

2. That there was no reasonable hope for the financial rehabilitation of the debtor, and that, therefore, the petition and amended petition filed by him were not filed in good faith, and that the proceedings under Sec. 75 could not be expected to have any effect beyond postponing inevitable liquidation.

On April 27, 1938, the Carrollton Investment Company, another secured creditor, also filed its motion to dismiss debtor's proceedings, claiming that the Court should not grant a stay of further relief to this debtor because the emergency upon which said relief was based no longer existed, the debtor having failed to make any payments on principal, interest or taxes; that the debtor was hopelessly bankrupt and there was no reasonable possibility or probability of a successful rehabilitation of debtor, and that the relief was not sought by debtor in good faith.

Hearings upon the above motions were held by the District Court on April 28, 1938. At said hearings, the debtor testified that he had two farms: one of 478 acres, upon which the Phoenix Joint Stock Land Bank had a mortgage for approximately $35,000 (there also being a second mortgage thereon of $15,000); that this farm is worth about $25,000; that his other farm consists of 427 acres, upon which the Carrollton Investment Company has a mortgage of approximately $38,000, the value of said farm being about $17,000; that the rental value of the farms is about $3 an acre, and the fair market value of the land is $40 an acre.

Debtor further testified that while the former appeal (from the judgment of February 13, 1937) in this Court was pending, all of his personal property was sold under chattel mortgage by the banking house of Wilcoxson & Company, or the Carrollton Investment Company, for $5,605,15, and this was applied on his indebtedness; and that since the institution of this suit, he has acquired personal property amounting to $5,102.

While said former appeal was pending, the Phoenix Joint Stock Land Bank also foreclosed its deed of trust and bid in the property, receiving the trustee's deed therefor dated March 20, 1937.

Debtor further testified that he had been a farmer all his life, and if he were allowed an extension, at the end of that period he thought he would be able to pay the then fair market value of his land. There was other testimony to this same effect.

The Court filed the two orders heretofore mentioned from which this appeal was taken, and thereafter, on May 6, 1938, debtor filed a motion for rehearing, which was overruled on May 28, 1938. The Court in its opinion overruling said motion held that the debtor must make a showing that he will be able to refinance himself within three years, which means that he will be able to pay his debts in full; that this requirement is not met by his making a showing that he will be able merely to pay the appraised value of the mortgaged property.

Appellant farmer-debtor contends that the Court erred in refusing to adjudge the debtor a bankrupt, because Sec. 75(s) of the Bankruptcy Act is both a bankruptcy and a moratorium statute; that the right to an adjudication in bankruptcy stands on the same basis as if a voluntary petition in bankruptcy had been filed; and the extension of three years is conditional upon the reasonable probability of the debtor's being able to rehabilitate...