Matter of Morris

• Decision Date: 24 June 1981
• Docket Number: 80 A 63.,Bankruptcy No. 79 B 39137
• Citation: 12 BR 321
• Court: U.S. Bankruptcy Court — Northern District of Illinois
• Parties: In the Matter of George E. MORRIS and Angelika Mercer Morris, et al., Debtors. George E. MORRIS and Angelika Mercer Morris, et al., Plaintiffs, v. ASSOCIATES FINANCE COMPANY, et al., Defendants.

12 B.R. 321 (1981)

In the Matter of George E. MORRIS and Angelika Mercer Morris, et al., Debtors George E. MORRIS and Angelika Mercer Morris, et al., Plaintiffs, v. ASSOCIATES FINANCE COMPANY, et al., Defendants.

Bankruptcy Nos. 79 B 39137, 80 A 63.

United States Bankruptcy Court, N.D. Illinois, E.D.

June 24, 1981.

Robert Gray, Joliet, Ill., for Morris.

Harold Shabelman, Joliet, Ill., for Associates Finance Co.

OPINION AND ORDER

RICHARD L. MERRICK, Bankruptcy Judge.

This cause comes on for decision upon the pleadings in nineteen separate cases¹ which have been consolidated for trial because all of them raise the question of the constitutionality of Section 522(f) of the Bankruptcy Code.² In each case, except one, one of the parties is a consumer debtor (usually spouses as joint debtors) and the other party is a finance company. In each instance, with the same single exception, the debt at issue is a consumer installment loan which has been secured by the granting of a security interest in household goods, and in seven instances in motor vehicles as well. The exception of the generalities of the nineteen cases is the isolated case in which the creditor has a judicial lien which the debtor seeks to avoid under § 522(f)(1). Creditors are defendants in twelve of the cases and plaintiffs in seven.

During the period that the nineteen cases were filed, the Federal exemptions of § 522(b)(1) of the Code were available to residents of Illinois, which all of the debtors are.³ No question was raised in any of the cases as to whether the allowable amount of the exemptions was large enough to cover the value of the collateral, so that for the purposes of this decision it is the law of the case that the value of the collateral did not exceed the amount of exemptions available to the debtors.

In ten of the nineteen cases the security interest was created prior to November 6, 1978⁴ and from time to time those interests may be referred to as "pre-enactment liens." In six of the nineteen cases the security interest was created between November 6, 1978 and October 1, 1979,⁵ and those interests may be referred to as "gap liens." In two of the cases the security interest was created after October 1, 1979, and those interests may be referred to as "post-effective liens." One case involves two notes executed at different times, one supporting a gap lien and one supporting a post-effective lien. For reasons discussed more fully below, the distinction is not important to this discussion, as the legal result is the same in any event. The United States of America intervened in support of the constitutionality of § 522(f)(1) and § 522(f)(2).

Although briefs were not filed in many of the cases, the issues have been briefed extensively, and no party has suffered because the facts peculiar to his own case have not been stressed separately. Similarly every party has had an opportunity to have his case argued orally, but some counsel declined to make oral judgment, possibly heeding the suggestion of the Court that nothing would be gained by having the same point raised nineteen times. In three of the cases the question of the value of the collateral has been placed at issue; these three cases will not be disposed of finally by this decision but will be subject to supplementary special subsequent trials at which evidence may be introduced respecting the value of the collateral.

The Court has considered the briefs submitted and the arguments made, as well as the decisions of many courts classified below,⁶ and feels that generally they are not persuasive because they do not deal with fundamentals but represent a superficial approach to a basic issue, particularly is this true in their discussions of the Radford case.⁷ As an exposition of the law and as an analysis of the issues touching on the constitutionality of § 522(f), this Court has found most of the writings deficient either because they assume too much or because there is not a logical connection between the major premise and the conclusion. As a means of avoiding those perceived deficiencies, this opinion will start with basic foundation stones and build upon them.

TRADE IN MEDIEVAL ENGLAND

Bankruptcy is an unfortunate but persistent concomitant of trade. Whenever trade advances above the simple barter level, credit will come into play, and credit will produce unpaid debts whenever borrowers meet financial misfortunes. Before discussing why bankruptcy law developed in its own peculiar manner in England and why it developed later there than on the Continent, it is worthwhile to establish a solid foundation of understanding of the economic climate in which this specialized branch of the law began to emerge.

Except for its participation in the Crusades, England was in a somewhat isolated position with respect to Western Europe through the thirteenth century, with a continuing balance toward rural life and cottage industry in comparison with what is now Italy, Germany, France and Belgium, which had begun their faltering movements toward an urban society and specialization in artisanship and manufacture. The rebellious attitude of the nobles toward the excesses of the kings which had produced the Magna Carta in 1215, continued under Henry III and Edward I, with a capitulation by the latter that taxes could be levied only by the consent of Parliament. During the thirteenth, fourteenth and fifteenth centuries the kings were anxious to expand the country's exports as a means of providing exchange to pay for its imports of glass, fabrics and finished metal, in particular. In an effort to promote maritime commerce Henry III created for the Hanseatic cities a corporation to encourage their citizens to settle in England, which was granted a patent for exclusive export shipping privileges, as well as other privileges and the exemption from heavy export duties paid by other aliens. Henry VIII revoked the patent some three hundred years later because the Easterlings had not developed an English merchant marine but continued to use their own ships.

STAPLES

The principal device for the fostering of export trade was the establishment of staples, or designating cities or towns, or portions of cities or towns, as staples. In a broad sense a staple was a single purpose community devoted to trade, export trade in particular, but trading in general. Each staple had its own permanent administrative staff, headed by a mayor appointed by the king. Where the staple was within the geographical limits of a city or town there would be parallel administrations, each largely independent of the other.

In 1347, after a siege of one year, the English under Edward III captured Calais, from which all French persons were banished, and it was repopulated with English. From 1390-1558 it was the Chief Staple and for a period of time was the only place from which wool, very much in demand in Flanders and France, could be exported from England. It was also a staple for linen, tin and lead, as were a number of other cities and towns. Limiting exports to a small number of communities greatly simplified the collection of export duties, and the monopoly power which the staple merchants had in setting prices for the exported commodities produced great profits for them which in turn enabled them to become financiers of the king, which, in turn, permitted him to wage wars, build castles, and other expensive diversions without being dependent upon Parliament to provide revenues. The staple merchants thus became an effective counterweight which the king could use in his continuing struggle for power with the nobility.

During the period of Crusades the proscription against the charging of interest by Christians had caused the lending of money to be largely in the hands of the Jews.⁸ In the reign of Edward I a shift developed, and the financing for the Crown and for the nobility came to be done primarily by citizens of Chiari in Lombardy and Asti in the Piedmont, who were referred to collectively as Lombards. A century later the merchants from Venice, Genoa and Naples and the financiers of Lucca and Florence still were referred to as Lombards.⁹ After the banishment of the Jews from England in 1290, the Lombards became the financiers of the general public as well as of the king and the nobility.

The extent of the loans by the Lombards to the king are staggering to comprehend and probably equalled 25% or more of the revenues of the country.¹⁰ Between 1272 and 1294 the Ricciardi family of Lucca lent Edward I £400,000.¹¹ The Frescobaldi family of Florence lent Edward I and Edward II £150,000 between 1296 and 1310. Edward I owed the Ricciardi family £27,000 and the Frescobaldi family £25,000 when he dropped them as his fiscal agents in 1295. The Peruzzi family lent Edward III £125,000 between 1338-39.¹² The interest rate which he paid is not known, but he paid the Bardi family 26% interest between 1328-1331. The Mirabello family charged Edward III 35% interest and took back the Great Crown of England as a pledge. Generally the loans were secured by a pledge of the excise taxes collected at the staples. When Edward III defaulted on his loans from the Bardi and Peruzzi families in 1340, it forced them into bankruptcy under Florentine law and their creditors were paid, respectively, 70% and 10%. From that point forward the Lombards were reluctant to finance the king, which caused him to develop a substitute source of money independent of Parliament. Future loans to the various kings by staple merchants were of the same magnitude as those described above. During the fourteenth through sixteenth centuries the four way power play which had existed among the Church, the Crown, the landed gentry and the merchants, gradually developed into a two way struggle between the gentry and the merchants, although grade school primers may describe it as a struggle between the gentry and the king or between the common people and the...