In re Radford

Citation8 F. Supp. 489
PartiesIn re RADFORD (LOUISVILLE JOINT STOCK LAND BANK, Intervener).
Decision Date14 November 1934
CourtU.S. District Court — Western District of Kentucky

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David A. Sachs, Jr., of Louisville, Ky., Frank Rives, of Hopkinsville, Ky., and Edwin A. Krauthoff, of Chicago, Ill., for debtor.

John E. Tarrant, of Louisville, Ky., for Louisville Joint Stock Land Bank.

William Lemke, of Fargo, N. D., amicus curiæ.

DAWSON, District Judge.

After an unsuccessful effort to secure a composition or extension of his debts under section 75 of the Bankruptcy Act, as added by the Act of March 3, 1933 (section 203, title 11, USCA), the debtor filed an amended petition, as authorized by the Frazier-Lemke Act (Act of June 28, 1934, 11 USCA § 203(s), claiming the benefits of that act. For convenience, the act is set out in full in the margin.1 At the time this amendment was filed, the debtor was the owner of a 170-acre farm in Christian county, Ky., on which there were two mortgages, aggregating the principal sum of $9,000, in favor of the Louisville Joint Stock Land Bank. In 1933 foreclosure proceedings were instituted by the bank in the state court; the debtor having defaulted on several installments of principal and interest and also on his obligation to pay the taxes and to keep the mortgaged property insured, and on June 30, 1934, a decree of foreclosure was entered and the property ordered sold. The amended petition herein was filed after the entry of the decree of foreclosure, but before a sale thereunder.

The Louisville Joint Stock Land Bank intervened in this proceeding by answer, challenging the constitutionality of the Frazier-Lemke Act, and this is the sole issue for decision. The bank insists: (1) That the Frazier-Lemke Act does not deal with the subject of bankruptcies, or with any subject over which Congress is given legislative power by the Constitution; (2) that the act deprives creditors of their property without due process of law, in violation of the Fifth Amendment to the Constitution of the United States; (3) that, as applied to this proceeding, the act denies full faith and credit to a judgment of a Kentucky court of competent jurisdiction, in violation of section 1 of article 4 of the Constitution.

The power of Congress to enact this legislation, if such power exists, can only be found in that provision of clause 4, section 8, article 1, of the Constitution, which empowers Congress "to establish uniform laws on the subject of bankruptcies throughout the United States." If the act, when read in connection with the National Bankruptcy Act of 1898, as from time to time amended (11 US CA), and of which it is a part, is not one on the subject of bankruptcies within the meaning of the Constitution, then it cannot be sustained.

Undoubtedly, the Constitution vests in Congress the power to pass laws which are territorially uniform, dealing with the relation of creditor and debtor, when the debtor is unable or unwilling to discharge his indebtedness in full. Whatever once may have been the doubt of courts and lawwriters as to the scope of the phrase "laws on the subject of bankruptcies," as used in the Constitution, it is now settled that this power of Congress is not limited nor circumscribed by the English bankruptcy acts in force at the time of the adoption of the Constitution. Probably the best definition which has ever been given of its scope is found in the discussion of the subject by Mr. Justice Catron in the case of In re Klein, decided in the Circuit Court for the District of Missouri, Fed. Cas. No. 7865, and also reported in a note to Nelson v. Carland, 1 How. 265, at pages 277, 281, 11 L. Ed. 126. He said: "It extends to all cases where the law causes to be distributed, the property of the debtor among his creditors: this is its least limit. Its greatest, is a discharge of the debtor from his contracts. And all intermediate legislation, affecting substance and form, but tending to further the great end of the subject — distribution and discharge—are in the competency and discretion of Congress."

This language was quoted with approval in the case of Hanover National Bank v. Moyses, 186 U. S. 181, 22 S. Ct. 857, 46 L. Ed. 1113, in which the court held that the permissible scope of bankruptcy laws under the Federal Constitution is much broader than had been the scope of the English laws on the subject prior to the adoption of the Constitution. That case holds that the subject of bankruptcies under the Constitution includes, not only the power to provide for a distribution of the property of the debtor among his creditors, but also the power to provide for a discharge of the debtor from his debts and legal liabilities, and that therefore the power conferred upon Congress by this provision of the Constitution involves the power to impair the obligation of contracts. It also holds that Congress possesses the power to make bankruptcy laws available to debtors as well as to creditors. Therefore the bankruptcy provision of the Constitution cannot be regarded as a power conferred upon Congress to be exercised solely for the benefit of creditors. Subject to the requirement of uniformity, it is a grant of plenary power over the subject of bankruptcies, and while, of course, Congress, under the pretext of executing this power, cannot pass laws dealing with matters not intrusted to the national government, Hammer v. Dagenhart, 247 U. S. 251, 38 S. Ct. 529, 62 L. Ed. 1101, 3 A. L. R. 649, Ann. Cas. 1918E, 724, Child Labor Case, 259 U. S. 20, 42 S. Ct. 449, 66 L. Ed. 817, 21 A. L. R. 1432, yet, so long as the legislation is fairly within the constitutional grant, the public policy exemplified therein is exclusively within congressional discretion. Consideration may be given to the rights both of creditors and of distressed debtors, provided only that the consideration extended to either class is not so unjust or arbitrary as to violate fundamental principles of justice or to smack of collusion between the lawmaking body and the favored class.

A fundamental essential of all bankruptcy laws under the Constitution is the reasonably prompt distribution among his creditors of the value of the property of the debtor unable or unwilling to pay his debts; but I cannot believe that this necessarily requires a sale of the bankrupt's property under competitive bidding. If the law provides for a realization of the fair value of the debtor's property by some other method than by such a sale, and for a distribution among the creditors according to their rights of the sum thus ascertained, the same general purpose is accomplished as would be accomplished by a sale, and therefore it seems to me entirely within the competency of Congress to provide for a determination of the value of the debtor's property subject to distribution by some other method than by a sale under competitive bidding. Hence there is no constitutional impediment against Congress providing that in a bankruptcy proceeding the actual fair value of the debtor's property subject to distribution shall be ascertained by appraisers appointed by the court, such appraisal to be made under the supervision and subject to the control of the court; nor to prevent Congress from designating the order of priority in which interested parties may be permitted to elect to pay the appraisal price and take the property. Furthermore, there can be no doubt that Congress can validly provide for the payment of this appraisal value within such a reasonable time, or in such installments over such a reasonable time, as it may determine; and it is entirely within the power of Congress to provide that the deferred payments shall not bear interest. Again, there can be no doubt of the power of Congress to require all of the bankrupt's property, including that covered by mortgages or other incumbrances, to be administered in the bankruptcy court, free from the interference of state tribunals; otherwise, the Constitution of the United States and the laws passed in pursuance thereof would not be the supreme law of the land, as they are declared to be in clause 2 of article 6 of the Constitution.

Measured by these principles, it seems to me that the act in question deals only with matters within the competency of Congress under the bankruptcy provision of the Constitution. It provides for adjudicating the debtor a bankrupt, and subjects all of his property to the control of the bankruptcy court. It provides for the distribution among his creditors, according to their respective rights, of the value of all of the debtor's property which is subject to his debts. It provides that this value shall be determined by an appraisal, but it is careful to set up ample safeguards against either overappraisal or underappraisal of the property. The appraisers are not bound by the market price at the time of the appraisal, but under the act are free to take into consideration all relevant factors in determining the true value of the property. The right of objections, exceptions, and appeal is made available to interested parties. I do not agree with the contention of the bank that the right of court review is granted only as to appraisals of real estate. The act, in part, provides: "The appraisals shall be made in all other respects, with right of objections, exceptions, and appeal, in accordance with this Act: Provided, That in case of real estate either party may file objections, exceptions, and appeals within one year from date of order approving the appraisal." 11 USCA § 203 (s) (1).

If the only right of court review of appraisals is of appraisals of real estate, then that part of the quoted language preceding the word "provided" is entirely meaningless. The meaning of the quoted language becomes perfectly apparent, however, when we keep in mind the fact that the Frazier-Lemke Act is, as its title declares, "An Act To amend an Act entitled `An Act to establish a uniform...

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10 cases
  • LOUISVILLE JOINT STOCK LAND BANK V. RADFORD
    • United States
    • United States Supreme Court
    • 27 Mayo 1935
  • In re Plumer, 823.
    • United States
    • United States District Courts. 9th Circuit. United States District Court (Southern District of California)
    • 21 Febrero 1935
    ...but may be invoked when present needs, standards, and wisdom and justice require. In re Landquist (D. C.) 70 F.(2d) 929. In re Radford (D. C.) 8 F. Supp. 489, 26 A. B. R. (N. S.) 47. The power of the Congress being fixed, and the act being temporary, the validity is established. Munn v. Ill......
  • Bradford v. Fahey, 3778
    • United States
    • United States Courts of Appeals. United States Court of Appeals (4th Circuit)
    • 2 Abril 1935
    ...in Louisville Joint Stock Land Bank v. Radford (C. C. A. 6) 74 F.(2d) 576; by Judge Dawson in the same case in the District Court In re Radford, 8 F. Supp. 489; by Judge Symes in In re Cope (D. C.) 8 F. Supp. 778; and by Judge Atwell in Paine v. Capitol Freehold Land Co. (D. C.) 8 F. Supp. ......
  • Louisville Joint Stock Land Bank v. Radford, 6959.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (6th Circuit)
    • 11 Febrero 1935
    ...subsection (s), 11 USCA § 203). The facts are not in dispute, and are sufficiently found in the opinion of the District Judge. In re Radford, 8 F. Supp. 489. The bankrupt is a farmer. In 1922 he borrowed $8,000 and in 1924 an additional $1,000 from the appellant bank, giving as security mor......
  • Request a trial to view additional results

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