In re Lindsay, 2985.

• Decision Date: 27 November 1935
• Docket Number: No. 2985.,2985.
• Parties: In re LINDSAY.
• Court: U.S. District Court — Northern District of Iowa

12 F. Supp. 625

In re LINDSAY.

No. 2985.

District Court, N. D. Iowa, W. D.

November 27, 1935.

Lew McDonald, of Cherokee, Iowa, for debtor.

Stewart & Hatfield, of Sioux City, Iowa, for mortgagee.

SCOTT, District Judge.

The controversy here presented is between a farmer debtor under section 75 of the Bankruptcy Act, as amended by the Act approved August 28, 1935, commonly referred to as the second Frazier-Lemke Act (11 USCA § 203 (g, k, n, p, and s), and the holder of a mortgage in course of foreclosure on the debtor's farm. On November 7, 1934, William Francis Lindsay, the debtor, filed his petition and schedules under section 75 of the Bankruptcy Act, scheduling as his sole asset a 270-acre farm of a scheduled estimated value of $24,000. The debtor schedules as incumbrance on said land, three mortgages; the first being a principal mortgage and a commission mortgage held by Farmers Loan & Trust Company of Sioux City, Iowa, and are scheduled in the amount of $28,007.97. The third mortgage, held by First National Bank of Aurelia, Iowa, scheduled in the amount of $2,738.50. $2,150 indebtedness is scheduled as secured by an assigned lease on the farm. Four other items aggregating $340.85 are scheduled as unsecured. However, these include an item of $112.36, and another item of $90.60, each of which have been reduced to judgment and are liens, and should have been scheduled as secured, junior, however, to the mortgages. The total scheduled indebtedness was, therefore, $34,008.32. The total assets, $24,000. One cow was scheduled at $40, but was claimed as exempt and is not an asset. The prayer of the petition was for leave to obtain a composition or extension of time to pay his debts under section 75, as amended.

The debtor's petition was approved as properly filed and referred to the conciliation commissioner for Cherokee county, who called a first meeting of creditors and gave the requisite notices. The debtor failed to secure conciliation, and asked for an extension of time, which was granted; and at the second meeting also failed to procure the approval of his creditors of his composition proposal. And on the 14th day of June, 1935, the conciliation commissioner returned the record under his certificate, reciting that the debtor was unable to procure a composition or extension, and recommended the dismissal of the proceeding. And thereupon, on the 17th day of June, 1935, the court entered an order dismissing said proceeding. In the meantime, and on May 27, 1935, the original subsection (s) of section 75 (48 Stat. 1289), which I shall refer to as the first Frazier-Lemke Act, was declared unconstitutional by the Supreme Court of the United States.

On August 27, 1935, the Farmers Loan & Trust Company of Sioux City, Iowa, instituted a suit in equity in the district court of Iowa in and for Cherokee county, against the debtor, alleging the execution and delivery of the principal mortgage, and the indebtedness thereby secured in the sum of $29,759.70, and further alleging maturity and default in payment of the indebtedness; and pleading further a provision in the granting clause of the mortgage covering rentals, revenues, and receipts of whatever character produced through the rentals of said property, and praying foreclosure of the mortgage, and the appointment of a receiver in pursuance of the provision of the mortgage to take and hold possession and to apply the rents and profits derived from said premises.

On the 27th day of September, 1935, the debtor filed a motion in this court in pursuance of the second Frazier-Lemke Act, asking that his previous petition be reinstated, and an order was made on the same day reinstating the same. On November 1, 1935, the debtor filed an amended debtor's petition under subsection (s) of the second Frazier-Lemke Act (11 USCA § 203 (s), alleging his occupation as a farmer; his residence on the farm; the filing of his previous petition; his inability to obtain a composition or extension by agreement with his creditors; praying that he be adjudged a bankrupt, and that the court enter a stay order directed to the district court of the state of Iowa for Cherokee county, and any judge sitting in said state court, to stay all proceedings in said foreclosure suit, pending the administration of the debtor's estate in this court, and authorize the appraisement of the debtor's property in the manner provided by said act, and for all other benefits provided in said subsection (s).

On November 4, 1935, and before any reference of said amended petition, the Farmers Loan & Trust Company appeared in this court and filed a motion to dismiss said proceeding, which motion was on the 8th day of November, 1935, superseded by the filing of an amended and substituted motion to dismiss the debtor's petition. The motion sets forth, in substance, the pertinent provisions of the bill to foreclose, including the further allegation that the mortgagor, in violation of the terms of the mortgage and in fraud of the respondent, has made a written lease covering the premises and sold and assigned the same, and further alleging that the debtor's petition is not filed in good faith.

The motion also challenges the constitutionality of the Act of Congress approved August 28, 1935, upon two grounds, viz.:

"1. The provisions of said Act of Congress under which said petition was filed do not come within the powers delegated to the United States by the Constitution since it is not a bankruptcy act as provided by said Constitution, nor are the provisions thereof prohibited by the Constitution to the states, but on the other hand the provisions thereof relate to matters reserved to the states under the 10th amendment to the Constitution.

"2. The provisions of the Act of Congress under which said petition is filed would amount to the taking of property of your respondent under its liens as set out in Exhibits `B' and `C' without due process of law and without just compensation, contrary to the 5th Amendment."

The motion having been brought to the attention of the court, the court issued an order to the debtor to show cause why the motion should not be granted, and in response thereto the debtor appears by counsel and hearing is had.

The motion, therefore, brings up for consideration at the outset all of the pertinent provisions of the act. Section 4, amending subsection (n), 11 USCA § 203 (n), provides in substance: The filing of a petition or answer praying for relief under section 75 as amended, "shall immediately subject the farmer and all his property, wherever located, for all the purposes of this section, to the exclusive jurisdiction of the court, including all real or personal property, * * * the right or the equity of redemption where the period of redemption has not or had not expired, or where a deed of trust has been given as security, or where the sale has not or had not been confirmed, or where deed had not been delivered, at the time of filing the petition.

"In all cases where, at the time of filing the petition, the period of redemption has not or had not expired, or where the right under a deed of trust has not or had not become absolute, or where the sale has not or had not been confirmed, or where deed had not been delivered, the period of redemption shall be extended or the confirmation of sale withheld for the period necessary for the purpose of carrying out the provisions of this section. The words `period of redemption' wherever they occur in this section shall include any State moratorium, whether established by legislative enactment or executive proclamation, or where the period of redemption has been extended by a judicial decree."

Subsection (s), 11 USCA § 203 (s) provides:

"Any farmer failing to obtain the acceptance of a majority in number and amount of all creditors whose claims are affected by a composition and/or extension proposal, or if he feels aggrieved by the composition and/or extension, may amend his petition or answer, asking to be adjudged a bankrupt. Such farmer may, at the same time, or at the time of the first hearing, petition the court that all of his property, wherever located, whether pledged, encumbered, or unencumbered, be appraised, and that his unencumbered exemptions, and unencumbered interest or equity in his exemptions, as prescribed by State law, be set aside to him, and that he be allowed to retain possession, under the supervision and control of the court, of any part or parcel or all of the remainder of his property, including his encumbered exemptions, under the terms and conditions set forth in this section. Upon such a request being made, the referee, under the jurisdiction of the court, shall designate and appoint appraisers, as provided for in this Act title. Such appraisers shall appraise all of the property of the debtor, wherever located, at its then fair and reasonable market value. The appraisals shall be made in all other respects with rights of objections, exceptions, and appeals, in accordance with this Act title: Provided, That in proceedings under this section, either party may file objections, exceptions, and take appeals within four months from the date that the referee approves the appraisal.

"(1) After the value of the debtor's property shall have been fixed by the appraisal herein provided, the referee shall issue an order setting aside to such debtor his unencumbered exemptions, and his unencumbered interest or equity in his exemptions, as prescribed by the State law, and shall further order that the possession, under the supervision and control of the court, of any part or parcel or all of the remainder of the debtor's property shall remain in the debtor, as herein provided for, subject to all existing mortgages, liens, pledges, or encumbrances. 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...