United States Nat. Bank of Omaha, Neb. v. Pamp, No. 10461.

• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)
• Writing for the Court: GARDNER, VAN VALKENBURGH, and FARIS, Circuit
• Citation: 83 F.2d 493
• Parties: UNITED STATES NAT. BANK OF OMAHA, NEB., et al. v. PAMP.
• Docket Number: No. 10461.
• Decision Date: 11 May 1936

83 F.2d 493 (1936)

UNITED STATES NAT. BANK OF OMAHA, NEB., et al.
v.
PAMP.

No. 10461.

Circuit Court of Appeals, Eighth Circuit.

May 11, 1936.

83 F.2d 494

COPYRIGHT MATERIAL OMITTED

83 F.2d 495

Henry E. Maxwell, of Omaha, Neb. (Edgar M. Morsman, Jr., and George Doane Keller, both of Omaha, Neb., on the brief), for appellants

Kelso A. Morgan, of Omaha, Neb. (Paul S. Sutton and Max Fromkin, both of Omaha, Neb., on the brief), for appellee.

Before GARDNER, VAN VALKENBURGH, and FARIS, Circuit Judges.

GARDNER, Circuit Judge.

This is an appeal from an order granting the application of a debtor to reinstate his petition under the amended Frazier-Lemke Act (Act of August 28, 1935, § 6, 49 Stat. 942, 11 U.S.C.A. § 203 (s), and staying proceedings in foreclosure of a real estate mortgage against the debtor. The issue to be determined is the constitutionality of that act as applied to the facts in this case.

Foreclosure of a real estate mortgage covering about 160 acres of farm land near Omaha, Neb., was commenced by appellants in the state district court March 11, 1933, and a decree of foreclosure, directing a sale of the property, was entered November 10, 1933. The mortgagor, defendant in that suit, appellee here, applied for and obtained a nine months stay as provided by section 20-1506, Neb. C.S.1929. At the expiration of this stay, an order of sale issued, and the sheriff, pursuant to the foreclosure decree, advertised the property for sale on October 2, 1934. On September 13, 1934, appellee filed his petition and schedules in the bankruptcy court under section 75 of the Bankruptcy Act, as amended June 7, 1934, and June 28, 1934, 48 Stat. 925, 1289 (see title 11 U.S.C.A. § 203). In the petition he alleged that he was engaged in farming the mortgaged

83 F.2d 496

tract, on which he lived with his family and which he owned and operated; that he was insolvent and unable to meet his debts as they matured; and that he desired to effect a composition or extension of time to pay his debts under section 75 of the Bankruptcy Act. The schedules listed appellants as creditors to the extent of a note of $14,000, secured by a mortgage on the farm, the entry of the foreclosure decree, and adjudication of the mortgage indebtedness in the sum of $13,097.86, with 10 per cent. interest from the date of the decree. Payment of taxes on the land by appellants, amounting to approximately $3,300, was shown

On September 13, 1934, an order was entered approving the debtor's petition as properly filed, and on October 2, 1934, the debtor filed an application in the bankruptcy court for an injunctional order staying proceedings in foreclosure of the mortgage. On this application, an order to show cause issued, requiring appellants to show cause on October 5, 1934, why the prayer of the application should not be granted and the sale enjoined. Appellants resisted the application, but the court overruled their contentions and entered a decree restraining them from taking any further or additional action in the state court in the foreclosure of their mortgage. Appellants then appealed to this court, and we affirmed the decree, holding the act constitutional to the extent that it was bankruptcy legislation and that other feaures of the alleged unconstitutionality were not before the court for decision. 77 F.(2d) 9, 12, 99 A.L.R. 1370.

On October 2, 1934, the foreclosure sale was held and the property was bid in by appellants for $14,345.53, the amount of the foreclosure decree, with interest and costs of suit. The sale has not been confirmed. Appellee was adjudged bankrupt on his petition December 14, 1934.

On May 27, 1935, the Supreme Court, in Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 55 S.Ct. 854, 79 L.Ed. 1593, 97 A.L.R. 1106, held the first Frazier-Lemke Act unconstitutional (48 Stat. 1289 (see 11 U.S.C.A. § 203 (s). On August 28, 1935, the amended Frazier-Lemke Act became law. On July 2, 1935, the lower court, on its own motion, vacated its order of October 5, 1934, restraining further proceedings in the foreclosure suit, vacated the adjudication of bankruptcy, and granted leave to the holders of liens to maintain and prosecute actions thereon, the same as though bankruptcy proceedings had not been brought, and the bankruptcy proceedings were dismissed.

On September 5, 1935, appellee filed his petition in the bankruptcy court, setting forth the proceedings under the first Frazier-Lemke Act, 48 Stat. 1289, and praying that the order of July 2, 1935 be set aside and the bankruptcy proceedings be restored. An order was accordingly entered by the court, reinstating the proceedings and setting aside and annulling the order of July 2, 1935. On October 1, 1935, the court set aside and vacated the order of September 5, 1935, and by the same order directed that the application of appellee to reinstate his petition be granted, and the amended petition was reinstated. It was also ordered that all judicial proceedings or official proceedings in any court should be stayed for a period of three years, and that appellee should be allowed to retain possession of all his real or personal property under supervision of the court, on condition that he pay to the clerk of the court a reasonable semiannual rental. The matter was referred to the conciliation commissioner as referee for hearing and report on the question as to the rental value of the property. On October 4, 1935, appellants filed their application to vacate the order of October 1, 1935, on grounds going to the invalidity of the first and second Frazier-Lemke Acts. The court denied this application, and this appeal has followed.

The proposed plan of composition and extension filed by appellee has not been accepted. The property has been appraised as required by subdivision (s) of the act, 11 U.S.C.A. § 203 (s). Appellants, in their challenge to the validity of the amended Frazier-Lemke Act, contend as follows: (1) The Act of August 28, 1935, violates the Fifth Amendment; (2) it is not bankruptcy legislation, but a pretext of exercise of the power to enact laws on the subject of bankruptcy; (3) it is an attempt on the part of Congress to exercise police powers in violation of the Tenth Amendment; (4) jurisdiction of the state court having first attached in an action in rem, Congress was without power to defeat or interfere with the jurisdiction of the state court and its dominion and control over the real estate in the foreclosure action; (5) there should be no administration of the real estate because no substantial equity remains in it for the bankrupt.

83 F.2d 497

We shall first consider whether any title of a substantial nature remains in the bankrupt, for, if not, there would seem to be no subject-matter upon which the act in question could be made effective. This is not to be confused with the question of whether his equity was of a substantial pecuniary value. The property has gone to sale, but the sale not having been confirmed, the legal title is still vested in the bankrupt. If the validity of the amended Frazier-Lemke Act be assumed, then all these proceedings are avoided, and the mortgagee has its mortgage unforeclosed, though in default. Subdivision (n), § 75, 11 U.S.C.A. § 203 (n), provides in part as follows:

"The filing of a petition * * * shall immediately subject the farmer and all his property, wherever located, for all the purposes of this section, to the exclusive jurisdiction of the court, including all real or personal property, or any equity or right in any such property, including, among others, contracts for purchase, contracts for deed, or conditional sales contracts, the right or the equity of redemption where the period of redemption has not or had not expired, or where a deed of trust has been given as security, or where the sale has not or had not been confirmed, or where deed had not been delivered, at the time of filing the petition.

"In all cases where, at the time of filing the petition, the period of redemption has not or had not expired, or where the right under a deed of trust has not or had not become absolute, or where the sale has not or had not been confirmed, or where deed had not been delivered, the period of redemption shall be extended or the confirmation of sale withheld for the period necessary for the purpose of carrying out the provisions of this section."

Section 75 embraces land in which the debtor has some interest. In re Tracy (C.C.A.7) 80 F.(2d) 9. Whether the debtor or bankrupt has an interest left in the property depends upon the application of local rules of property which, of course, are binding upon this court. It is therefore necessary to consider what the relative rights of appellants and appellee were after the foreclosure sale, as well as before, because the status of the parties at the time of the bankruptcy cannot be disregarded.

In Nebraska, a mortgagee has the right (1) to foreclose a mortgage of real estate in court and to have a decree of the court for the sale of the mortgaged premises, to discharge the amount due on the mortgage with costs of the suit (sections 20-2139, 20-2140, C.S.1929); (2) to have a sale of the mortgaged premises under the decree by the sheriff or some other person authorized by the court in the county where the premises or some part of them are situated (section 20-2146, C.S.1929); (3) upon the return of the officer to have a confirmation of the sale by the court, and its order that the officer make to the purchaser a deed of the lands and tenements, the court being satisfied that the sale has in all respects been made in conformity to the provisions of the Nebraska statutes, and that the property sold for fair value, under the circumstances and conditions of the sale, or that a subsequent sale would not realize a greater amount, and the court may then order that the officer make to the purchaser a deed of the land (section 20-1531, C.S. 1929, as amended by Laws...