In re Lowmon, 5483.

• Decision Date: 19 December 1935
• Docket Number: No. 5483.,5483.
• Citation: 79 F.2d 887
• Parties: In re LOWMON. LAFAYETTE LIFE INS. CO. v. LOWMON.
• Court: U.S. Court of Appeals — Seventh Circuit

79 F.2d 887 (1935)

In re LOWMON LAFAYETTE LIFE INS. CO. v. LOWMON.

No. 5483.

Circuit Court of Appeals, Seventh Circuit.

November 15, 1935.

Rehearing Denied December 19, 1935.

Charles H. Stuart, Allison E. Stuart, Brenton A. Devol, and Cable G. Ball, all of Lafayette, Ind. (Edward B. Raub, Jr., of Lafayette, Ind., of counsel), for appellant.

Otto Gresham, of Chicago, Ill., and Samuel E. Cook, of Huntington, Ind., for appellee.

Herbert C. Lust, of Fowler, Ind., amicus curiæ.

Before SPARKS and ALSCHULER, Circuit Judges, and BRIGGLE, District Judge.

SPARKS, Circuit Judge.

This is an appeal from an order of the District Court entered on February 25, 1935, overruling appellant's motion to dissolve an injunction entered on November 20, 1934. The injunction restrained the sheriff of Benton County, Indiana, until further order of the court, from issuing or delivering a deed pursuant to a certificate of sale executed on August 5, 1933, in a proceeding instituted by appellant on January 6, 1933, to foreclose its mortgage for $30,000 on certain premises owned by appellee. The latter filed her petition on July 23, 1934, for relief under the Frazier-Lemke Act (Bankr. Act § 75 (s), as added by Act June 28, 1934, 48 Stat. 1289) providing for the composition and extension of her debts. When she filed her petition she was occupying the premises under a lease executed by the receiver appointed by the state court in connection with the foreclosure proceedings, and she complained in her petition that the lease was onerous and the rent excessive. The only specific prayer for relief contained in the petition was for an injunction against the sheriff to prevent him from issuing the deed. The petition was approved by the court as properly filed and referred to a conciliation commissioner on the day of the filing. Appellee annexed to her petition a schedule of debts containing two items, a contingent liability to appellant of $35,000, and a chattel mortgage to another party of $4,000. She also annexed an inventory of her property including the 320 acre farm covered by the mortgage in question, certain live stock and farm machinery. There nowhere appears in the record any estimate of the value of any of this property, either real or personal. In a second petition filed subsequently, on July 30, 1934, appellee made the only suggestion of her proposed plan for rehabilitation in stating that she would do all in her power to secure a loan from the Farm Credit Administration of the Government of the United States for the purpose of making a composition as prayed for in her original petition. It does not appear that she had previously applied for a loan, nor that she subsequently made any specific proposal for a composition. In accordance with the prayer of her original and second petitions, the District Court on November 20, 1934, entered the restraining order, the effect of which was to prevent appellant from securing the deed to which it would otherwise have been entitled, under the laws of Indiana, upon its demand any time after August 5, 1934. On November 26, appellant filed its motion to dissolve the injunction on the ground, among others, that since the petitioner's right of redemption had expired by law and terminated without a proposal of composition or extension, the court was without power to extend or revive her right of redemption. This motion was overruled on February 25, 1935.

The question of the right of this court to hear this appeal was raised after the hearing in this case, and the suggestion made that we are without jurisdiction for the reason that the appeal had been taken in the District Court only, and none prayed or allowed in this court, whereas the matter is one which is properly appealable only in the discretion of this court under section 24(b) of the Bankruptcy Act, 11 USCA § 47 (b). We do not agree with this contention. The order appealed from presented a substantial controversy between the debtor and her alleged principal creditor who, however, denied that the relationship of debtor and creditor any longer existed between them, claiming title to the principal asset said to belong to the estate, subject to a bare right of redemption which expired over three months prior to the entry of the order complained of. We think this presents a controversy arising in a bankruptcy proceeding, and as such is properly appealable under section 24(a) of the Bankruptcy Act, 11 USCA § 47 (a).

By the amendment to section 75 of the Bankruptcy Act enacted by Congress on August 28, 1935 (11 USCA § 203) it is expressly provided that where the period of redemption has not expired prior to the filing of a petition under section 75, that period shall be extended or the confirmation of sale withheld for the period necessary for the purpose of carrying out the provisions of this section.¹

The amended Act (section 75 (s) (5), 11 USCA § 203 (s) (5) also provides that it is to be held to apply to all existing cases now pending in any Federal court, as well as to future cases, and that all cases that have been dismissed by any conciliation commissioner, referee, or court because of the Supreme Court decision holding the former subsection (s) unconstitutional, shall be promptly reinstated, without any additional filing fees or charges.

It will be seen that these provisions expressly cover the situation involved in this case, so that, if valid, they operate to validate the injunction here complained of. The question then is, has Congress the power, under article 1, section 8, clause 4 of the Constitution, to confer upon courts of bankruptcy jurisdiction over property where foreclosure proceedings have been had in the state courts, and where, but for the extension of the period of redemption by virtue of this enactment, the owner would have lost all right to redeem by failure to exercise that right within the period provided by state statute?

At the outset it should be observed that in section 75 of the Bankruptcy Act, Congress has extended the jurisdiction of the courts of bankruptcy much further than in section 74 (11 USCA § 202). The latter provides that the filing of the debtor's petition shall subject him and his property to the exclusive jurisdiction of the court including property in the custody of another court in connection with pending proceedings irrespective of the date of the institution of such proceedings, provided that it shall not affect any proceedings in any court in which a final decree has been entered. 11 USCA § 202 (m). This court decided, in Re Sorenson, 77 F.(2d) 166, certiorari denied Sorenson v. Collins, 56 S. Ct. 133, 80 L. Ed. ___, October 14, 1935, that a decree of foreclosure constituted such final decree, and that it adjudicated, as between the parties to the litigation, all issues relating to their mutual rights and obligations. Under the laws of Indiana, upon a sale under such decree, the sheriff is authorized to issue to the purchaser a certificate of purchase which "shall entitle the purchaser * * * or assigns, to a conveyance of the estate in said real property bought by such purchaser, at the expiration of one (1) year from the date of his purchase unless the same shall have been previously redeemed as hereinafter provided." Burns' Indiana Statutes Annotated 1933, § 2-3909.

It was held in Hubble v. Berry, 180 Ind. 513, 103 N. E. 328, 330, that: "A sheriff's certificate * * * after the expiration of the year for redemption, invests the holder with an equitable estate in the land of such high character that it only requires his demand for a deed to ripen it into an absolute legal title. * * * `At the expiration of one year from the date of the sale, the property not having been previously redeemed, the right and title of the holders of the certificate to a deed * * * became absolute under the statute and so continued until such deed was demanded and executed.'" This means, then, that the Indiana statute confers upon the purchaser, whether he be the mortgagee or a third party, the absolute right to a conveyance upon demand at the end of the year, unless the mortgagor shall have exercised his right to redeem the property within the period allotted to him for that purpose. Congress, by the amendment of August, 1935, has attempted to extinguish this right by providing that when the conditions set forth in the amended subsection (s) 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 three years, at the end of which time, or prior thereto, the debtor may pay into court the amount of an appraisal...