Louisville Joint Stock Land Bank v. Radford

Decision Date11 February 1935
Docket NumberNo. 6959.,6959.
Citation74 F.2d 576
PartiesLOUISVILLE JOINT STOCK LAND BANK v. RADFORD.
CourtU.S. Court of Appeals — Sixth Circuit

J. E. Tarrant and William Marshall Bullitt, both of Louisville, Ky. (J. E. Tarrant, of Louisville, Ky., on the brief), for appellant.

E. A. Krauthoff, of Chicago, Ill., Harry H. Peterson, of St. Paul, Minn., and William Lemke, of Washington, D. C. (P. O. Sathre, of Bismarck, N. D., David A. Sachs, Jr., of Louisville, Ky., and Frank Rives, of Hopkinsville, Ky., on the brief), for appellee.

Robert H. Winn, of Mount Sterling, Ky., amicus curiæ.

Before MOORMAN, HICKS, and SIMONS, Circuit Judges.

SIMONS, Circuit Judge.

This appeal, seasonably allowed by us and by the District Court, raises questions in respect to the constitutionality of section 75 of the Bankruptcy Act, as amended by the Frazier-Lemke Act of June 28, 1934 (adding 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 mortgages on his 170-acre farm in Christian county, Ky., the mortgages containing covenants to pay taxes and to keep the buildings insured. Upon default in the payment of principal, interest, and taxes, and through allowance of insurance to lapse, the bank, pursuant to the terms of the mortgages, declared the entire indebtedness thereon due and payable, and on June 5, 1933, filed a foreclosure suit in the circuit court of Christian county. Later the bank moved for the appointment of a receiver, but, upon being informed by the conciliation commissioner of the county that Radford desired to avail himself of the benefits of section 75 of the Bankruptcy Act (11 USCA § 203), providing for agricultural compositions and extensions, the court declined to appoint the receiver, and stayed the foreclosure suit. On February 26, 1934, Radford filed in the United States District Court his petition and schedule under section 75. On June 30, 1934, the Christian county circuit court entered judgment for the bank for the full amount of Radford's indebtedness, sustained the mortgages as a first lien upon his farm, and ordered the property sold by the master commissioner. Before the sale could be had, Radford, on August 6, 1934, filed in the District Court an amended petition under the Frazier-Lemke Act, asking to be adjudged a bankrupt; that proceedings against him be stayed for a period of five years; that he be allowed to retain possession of the property during that period; and that he be given an option to purchase the mortgaged property at its appraised value at its termination. The bank intervened and answered, alleging section 75 as amended to be unconstitutional, asking dismissal of the bankruptcy proceedings, and that it be allowed to pursue its remedies in accordance with the judgment of the circuit court. Radford admitted the allegations of fact in the answer, and the case was submitted upon the pleadings. The court held section 75 and the Frazier-Lemke Amendment constitutional, adjudged Radford a bankrupt, and referred the cause to the referee for further proceedings.

Radford then petitioned to have his property appraised, his exemptions set aside, and that he be allowed to retain possession of the property and pay for it under the terms of subsection (s) of section 75 of the Bankruptcy Act (11 USCA § 203 (s). The referee appointed appraisers, who appraised all of Radford's property, and fixed the fair and reasonable value of the mortgaged property at $4,445. The bank in open court offered to pay $9,205.09 in cash for the mortgaged property, but the referee refused to consider the offer, approved the report of the appraisers, fixed the fair and reasonable value at $4,445, and ordered that possession thereof should remain in Radford, subject to a general lien in the trustee as security for the payment of the value of the property. Radford thereupon requested the trustee to sell him the mortgaged property under the terms and conditions of paragraph (3) of subsection (s) of section 75 of the act, 11 USCA § 203 (s) (3). The bank refused consent, and filed its written objections thereto. Radford then petitioned the court to stay all proceedings against him for five years, and to allow him to retain possession upon a reasonable annual rental to be fixed by the court. The petition was granted, proceedings were stayed, the bank enjoined from enforcing its mortgage lien for five years, and Radford allowed to retain possession on payment of $325 on May 1, 1935, as rental for the first year, with rental for subsequent years to be fixed by the court. Upon a petition to the District Court for review, the referee's orders were sustained, and the bank took its appeal.

Section 75 of the Bankruptcy Act, as originally enacted, was part of the Act of March 3, 1933, entitled "Provisions for the Relief of Debtors." It provided that any farmer claiming to be insolvent or unable to meet his debts might file a petition for composition or an extension. This automatically gave the bankruptcy court the same power and jurisdiction over the farmer and his property as if a voluntary petition for adjudication had been filed, and a decree of adjudication entered. Thereupon all proceedings against the farmer and his farm property, including his home and household effects, were stayed, except for the collection of taxes. The proposed composition or extension could be confirmed by the court only upon written acceptance by a majority of creditors in number and amount, but such composition or extension might not reduce the amount of or impair the lien of a secured creditor, but affect only the time and method of its liquidation.

The Frazier-Lemke Act of June 28, 1934, is an amendment to section 75 of the Act of March 3, 1933. Its text is fully set forth in the opinion of the District Judge, and it is therefore not necessary to burden this opinion with it. It is sufficient for our purpose to say that it provides that a farmer failing to obtain the necessary consent to the terms of a composition or extension may by amended petition ask to be adjudged a bankrupt and secure the appointment of appraisers, who shall appraise all of his property at its then fair and reasonable value, not necessarily its market value, and, after such appraisal, and after his exemptions under the state law have been set aside to him, then upon an agreement with the lienholders the trustee in bankruptcy must sell back to him all or any part of his property upon the terms specified in the act, but that, if any secured creditor refuses to consent to such sale, the court shall stay all proceedings for a period of five years, during which time the farmer may retain possession of all or any part of his property, provided he pays a reasonable annual rental therefor. At any time within five years the farmer may obtain full possession and title to his property by paying into court either its original appraised value, or, in the case of mortgaged real estate, a reappraised price at the option of the lienholder, and may apply for his discharge in bankruptcy. The provisions of the act apply, however, only to debts existing on June 28, 1934.

The legislation in respect to its validity under the Federal Constitution is attacked on two main grounds. It is asserted (1) that section 75 as amended is not a law on the subject of bankruptcies and does not deal with any subject over which power is delegated to Congress, and so is in contravention of the Tenth Amendment to the Constitution of the United States; and (2) that it deprives creditors of their property without due process of law, and is therefore in contravention of the Fifth Amendment to the Constitution.

The power to legislate with respect to bankruptcies is conferred upon the Congress by the fourth clause of section 8 of article 1 of the Constitution, whereby there is vested in it the power "* * * to establish * * * uniform laws on the subject of bankruptcies throughout the United States." This power is conferred by express grant, and is, so far as the granting clause is concerned, without qualification or limitation. "The power of Congress to establish uniform laws on the subject of bankruptcies throughout the United States is unrestricted and paramount." International Shoe Co. v. Pinkus, 278 U. S. 261, 265, 49 S. Ct. 108, 110, 73 L. Ed. 318.

On the first ground it is said that a law is not one on the subject of bankruptcies which does not provide for the speedy distribution of an insolvent debtor's assets among his creditors. The contention is that the attacked legislation fails to meet this test in providing that the debtor may at his option retain his property, that his debts may be reduced to the fair and reasonable value of his property, not necessarily the market value, and that he shall have a five-year moratorium on the payment of this reduced amount.

Whatever may have been the primary purpose of bankruptcy laws, their historical development and the concept of an earlier day, illustrated by the provisions of English bankruptcy statutes and colonial insolvency laws, it is now established that the subject of bankruptcies includes, not only the ratable distribution of the debtor's property, but the discharge of the bankrupt from his obligations. No commentary upon the connotation of the constitutional phrase has been so often quoted as that of Mr. Justice Catron in the case of Matter of Klein, reported in the note to Nelson v. Carland, 1 How. 265, 277, 11 L. Ed. 126: "I hold, 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...

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5 cases
  • LOUISVILLE JOINT STOCK LAND BANK V. RADFORD
    • United States
    • U.S. Supreme Court
    • May 27, 1935
    ...powerless to terminate the bankrupt's option unless there has been the commission of waste or failure to pay the prescribed rent. P. 593. 74 F.2d 576 Certiorari, 294 U.S. 702, to review a judgment affirming orders of the District Court in proceedings taken by Radford under the amendment of ......
  • In re Curry, Bankruptcy No. 579-1155.
    • United States
    • U.S. Bankruptcy Court — Northern District of Ohio
    • July 21, 1980
    ...impairs the obligations of contracts, is in its terms, a limitation on the powers of the states only. Louisville Joint Stock Land Bank v. Radford, 74 F.2d 576 at 580 (6th Cir. 1935). The Constitutional provision conferring upon Congress the power to legislate on the subject of bankruptcies ......
  • In re Fisher
    • United States
    • U.S. Bankruptcy Court — Northern District of Ohio
    • September 19, 1980
    ...impairs the obligations of contracts, is in its terms, a limitation on the powers of the states only. Louisville Joint Stock Land Bank v. Radford, 74 F.2d 576 at 580 (6th Cir. 1935). The Constitutional provision conferring upon Congress the power to legislate on the subject of bankruptcies ......
  • In re Ambrose
    • United States
    • U.S. Bankruptcy Court — Northern District of Ohio
    • June 6, 1980
    ...impairs the obligations of contracts, is in its terms, a limitation on the powers of the states only. Louisville Joint Stock Land Bank v. Radford, 74 F.2d 576, at 580 (6th Cir. 1935). The Constitutional provision conferring upon Congress the power to legislate on the subject of bankruptcies......
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