John Hancock Mut Life Ins Co v. Bartels

• Citation: 60 S.Ct. 221,308 U.S. 180,84 L.Ed. 176
• Decision Date: 04 December 1939
• Docket Number: No. 33,33
• Parties: JOHN HANCOCK MUT. LIFE INS. CO. v. BARTELS
• Court: United States Supreme Court

308 U.S. 180

60 S.Ct. 221

84 L.Ed. 176

JOHN HANCOCK MUT. LIFE INS. CO.

v BARTELS.

No. 33.

Argued Nov. 9, 1939.

Decided Dec. 4, 1939.

Messrs. L. M. Bickett, of San Antonio, Tex., and John H. Bickett, Jr., of Dallas, Tex., for petitioner.

Messrs. T. E. Mosheim, of Seguin, Tex., Elmer McClain, of Lima, Ohio, and Wm. Lemke, of Fargo, N.D., for respondent.

Mr. Chief Justice HUGHES delivered the opinion of the Court.

In this proceeding brought by a farmer under Section 75 of the Bankruptcy Act, 11 U.S.C.A. § 203, the District Court dismissed the debtor's petition. The Circuit Court of Appeals held that this action was contrary to the requirements of the statute and directed the proceeding to be reinstated. 5 Cir., 100 F.2d 813. Because of conflict in the rulings of the Court of Appeals of the Fifth Circuit, due to the differing views of the judges composing the court in the cases cited,¹ and because of the importance of the question, we granted certiorari, 307 U.S. 617, 59 S.Ct. 794, 83 L.Ed. 1498, April 24, 1939.

Respondent Bartels presented his petition to the District Court on December 2, 1937, asking that he be afforded an opportunity to effect a composition or exten- sion of time to pay his debts under Section 75. The court referred the matter to a conciliation commissioner, directing the debtor to appear before the commissioner and to submit to such orders as might be made in proceedings under that section. A meeting of the creditors was held on December 21, 1937, at which the debtor was present and was examined. It appeared that his debts amounted to about $10,000 of which about $8,000 (including interest and attorney's fees) was owing to the John Hancock Mutual Life Insurance Company and was secured by a lien upon his home. As the debtor was unable to obtain an agreement with a majority of his creditors in number and amount, he notified the commissioner that he would apply to be adjudged a bankrupt under subsection § of Section 75, 11 U.S.C.A. § 203, sub. s. That application was filed on January 10, 1938. The debtor asked that 'his property be appraised', that 'his exemption be set aside to him' and that he be permitted 'to retain possession of his property under the supervision of the court'. On the same day, the District Judge entered an order adjudging the debtor a bankrupt and requiring further proceedings before the commissioner acting as referee under subsection s.

On March 23, 1938, the John Hancock Company moved to set aside the adjudication and to dismiss the debtor's petition on the ground that the debtor was not entitled to avail himself of the provisions of subsection (s); that he had not presented any feasible plan for a composition and extension of his debts, and that his petition 'was not filed in good faith' or 'with and hope or expectation of working out his debts and paying up his delinquencies but apparently for the sole purpose of hindering and delaying his creditors'. The Company also alleged that at the fair market value of the real property held by it as security there was no equity for the debtor and that the Company would suffer irreparable loss unless the adjudication was set aside and the proceeding dismissed. The debtor denied these allegations and alleged that the land on which the Company had a lien was worth unimproved more than $7,000 and that the improvements were worth $6,000 and that he thus had a large equity which would be lost to him unless he obtained the benefits sought under the applicable law.

At the hearing of the motion on April 5, 1938, the court received the evidence previously taken before the commissioner and additional testimony. Thereupon the motion was granted. The District Judge said in his opinion that the debtor had not made any proposal which could be construed as a 'good faith offer for an extension or composition' and hence the debtor was not entitled to be adjudged a bankrupt under subsection s. The District Judge observed that the evidence was conflicting as to the value of the land (100 acres); that, separating the land from its improvements, certain of the debtor's witnesses placed its value at $70 an acre and the improvements at $5,000 or $6,000, while witnesses for the creditor valued the land at about $40 an acre and the improvements at about $2,000. He thought that there was no reasonable probability of the property being sold for enough to give any substantial equity to the debtor and accordingly found that there was no reasonable probability of the debtor's financial rehabilitation. In that view the District Judge concluded 'that the order adjudicating the debtor a bankrupt under subsection (s) was improperly entered and should be set aside and the cause dismissed'.

We think that the District Judge failed to follow the mandate of the statute and that the Circuit Court of Appeals was right in reversing the judgment and ordering the proceeding to be reinstated.

Subsection § of Section 75 as amended by the Act of August 28, 1935,² prescribes a definite course of procedure. That subsection applies explicitly to a case of a farmer who has failed to obtain the acceptance of a majority in number and amount of all creditors whose claims are affected by a proposal for a composition or an extension of time to pay his debts. That was Bartels' situation. Provisions for proceedings by a farmer to obtain a composition or extension, when he is insolvent or unable to pay his debts as they mature, are found in subsections a to r of Section 75, 11 U.S.C.A. § 203, subs. a to r. For that relief Bartels had presented his petition under subsection (c) and the District Court had approved the petition as properly filed. According to the report of the conciliation commissioner, to whom the matter was referred according to the statute, Bartels had appeared at the meeting of the creditors and had submitted to a detailed examination concerning his financial condition. He proposed to sell certain property and to apply the proceeds to the payment in part of the amounts due to the John Hancock Company, the secured creditor. He succeeded in obtaining an agreement with certain unsecured creditors for an extension but the secured creditor refused consent, as Bartels could not meet all his arrears. Bartels was thus precisely in the condition prescribed in subsection s.

The subsections of Section 75 which regulate the procedure in relation to the effort of a farmer-debtor to obtain a composition or extension contain no provision for a dismissal because of the absence of a reasonable probability of the financial rehabilitation of the debtor.³ Nor is there anything in these subsections which warrants the imputation of lack of good faith to a farmer-debtor because of that plight. The plain purpose of...