Recommendation — Louisville Joint Stock Land Bank v. Radford

"Supreme Court of the United States

j aa

No. 717

Lovisviie Jornt Stock Lanp Bank, - Petitioner,

v. ,

" Wiu1am W. Raprorp, Seton, - - Respondent.

RECOMMENDATION

—BY—

“s EDWIN A. ERAUTHOF?P.

Now this day comes Edwin A. Krauthoff in pro.

per., and files this document by way of recommenda-

tion herein. '

_ (in explanation of the form which this document

has assumed, the following is submitted: Originally

Mr. Krauthoff and. the debtor, Mr. Radford, entered

into an arrangement .whereby Mr. Krauthoff was au-

thorized to act as counsel herein for Mr. Radford,

with plenary powers. So far as Mr. Krauthoff is ad-

ised, that arrangement has not been terminated. ‘In

order; however, to simplify the situation, and to pre-

vent any controversy that might arise in the event that

an effort be made to revoke such authority, Mr. Kraut-

hoff submits this document in pro. per.; in the form

of a recommendation, ) r.

h-.

I.

a

The first recommendation is that the Court accept’ ~

as controlling authority herein, the decision of. this

. Court (April 4, 1935), “ontinerital Illinois Nat. Bk.

& Tr. Co. v. Chicago, Rock Island & Pacific Ry. Co. .

and accordingly uphcid as constitutionally valid, the

Frazier-Lémke Act so far as the type and character

thereof and its underlying principle are concerned.

- also, 75 Fed. (2d) 894, 897, id ;

IL

As to the application of the Fifth, Amendment to

this proceeding;

The Fifth Amendment does not provide that an

Act of Congress, which in circumstances not yet arisen

“ as to a person who may or may not be.a party to the

proceeding at issue, may deprive hip of his property

~ without due process of law, is for that reason invalid

_ as to everybody and in all circumstances. The Fifth

_ Amendment deals with particulars and not generalities,

_ with the logic of events, and not the doctrine of imag-

inary possibilities. —

| “A statute valid as to one set of facts may be

invalid as to another. A statute valid when en-

acted may become invalid by change in the condi-

tions to which it is applied.”’

Nashville, ete., Ry. Co. v. Walters (March 4,

1935), 55 Sup. Ct. 486, 488.

r

,

et es Ne eh

Consult I Kings 8:59. %

_ Tested by this standard, the only question arising

on the record herein is the propriety of the action of

the District Court in granting to Mr. Radford a ten-

ancy for a definite period, of the farm once owned by. ‘

hifn upon the terms fixed by the District Court, for that’

is the only action iaken by the Distiict Court in this

Upon further study’ and’ reflection, the author o

this document has been impelled to conclude, that un-

der the precise Yanguage of the Fraeier-Lemke Act

as passed, the action of the District Court in permit- ~

‘ting Radford without the consent of Louisville Joint

Stock Land Bank to become e. tenant of the farm once

owned by him, is not warranted by the terms of the

statute as written, but is sustainable gn othet grounds.

Turning to the Frazier-Lemke Act, we find that

the statutory. right of Mr. Radford to repurchase the

‘farm once owned by him must be predicated of an

agreement on his part to do so.

In the opening sentences of the Fraziet-Lemke Act

Act, approved June 28, 1934), a provision is found:

‘Such farmer’’ (that, is a farmer who has —

failed to obtain the acceptance ‘of a majority in

number and amount of all his creditors whose

claims are affected by a composition or extension

proposal and who thereafter has been adjudicated

a bankrupt), ‘“‘may petition the court that all of

his property * * * beappraised * * * and

that he be allowed to retain possession = =

(Subdivision .(s), Section. 75, National Bankruptcy oe

“i

- 4

of his property and pay for same under the terms ,

and conditions set forth in this subsection (s).”’

Paragraph (1) of Subsection (s), Frazier-Lemke

Act, then provides for the appointment of appraisers

and the making of an appraisal.

- ., Paragraph (2) of the Act just cited, siete for

the entry of an order of a possessory nature on the

part of the debtor. But inasmuch as this possession

is ‘‘subject to and inferior to all liens,” which “shall

‘remain in full force and effect,’’.it is evident that par-

__agraph (2), just cited, gives no rigkt of repurchase to

the debtor, but merely a limited — toa ew

of his estate. :

To understand paragraph (3) of the

Lemke Act as enacted, we must read the paragraph in

the form it assumed as Mr. Lemke introduced the bill.

As thus drafted, the paragraph began in this wise;

“Upon request of the debtor, the- trustee _ = ¢¢

shall agree to sell to the debtor,’’ all.or part ‘‘of the

bankrupt estate at the appraised value,’’ not insert-

ing the words thereafter added by amendment, “‘aid

. with the consent of the lienholder or lienholders.” $s

As thus written, it is clear:

_ * (a) Originally, paragraph (3) of the Frazier-.

Lemke Act was self-executing and did not depend upon

the consent of the lienholder for its operative force and

effect.

(b) Paragraph (3) of the Act as adenine ant ‘

passed, contemplates an agreement by the trustee to

sell, consequently of the debtor to buy, and contains

no element of an option to the debtor to purchase.

.

See authorities, infra:

Paragraph (4) of the Act then states: ‘‘Am agree-

_ ment having been reached’ as provided in Subsection

(3) ;”’ so that paragraph (4) recognizes:

(a) The agreement to sell by the trustee and to

_ . bay by the debtor, depends on paragraph (3) of the

Act;

(b) The “manner of Sean and distribution of

debtor’s property’’ under the Act depends in the al- -

ternative specified in paragraph (7) thereof (that is,

a.written objection by a secured creditor), either upon

paragraph (3) or paragraph (7). “a

As thus written, the Act was intelligible aad if so

enacted would have been operative.

But in the stress and strain of the closing days of

Congress, the words “‘with the consent of the lienholder

or lienholders’’ were insertéd in the opening part of

paragréph (3) of the Act, in the House of Represen- ;

tatives after it had passed the Senate by an amend-

ment not offered by Mr. hamn, and were then agreed»

to in conference. .

Judge Lindley, In Re tices, | 9 Fed. Supp. 1, dis-

' eusses the effect of thé language of Congress in thus

amending the bill, and in the judgment of the author

of this document (reached after many efforts to dem-

onstrate a contrary result), this Court is compelled

to adopt the réasoning of Judge Lindley in that par-

ticular.

~ ow ral

: 6

‘a

The effect of’ J alge Lindley’ s ruling may be thus

summarized :

(a) Paragraph (3) of the Act depends for its Op-

x erative force and effect upon the consent of the lien-

holder. |

(b) The operative force and effect of paragraph

(7) of the Act, is hypothesized of a written objection

by the lienholder to the manner of fayments and dis-

tribution of the debtor’s estate provided in paragraph

_ (8) of the Act. 2

(c) In the absence of a comment under ciliate

(3) ‘of the Act and of a written objection under para-

graph (7) of the Act, neither paragraph operates and

no relief i is accorded to the debtor thereunder.

In this connection,.it must be remembered that upon |

7 _ the adjudication of Mr. Radford, as a bankrupt, the

- title to his farm passed from him to the trustee in

‘ -bankruptey of the estate.

. National Bankruptcy Law, Sec. 70. ,

inte Section 10(a), National Bankruptey Law,

the trustee is vested with the title ‘of the bankrupt as .

to all’ non-exempt property owned by him.

Gilbert’s Collier on Bankruptey (3d Ed.), P- 1166,

. Seo, 1448.

And before the title of the trustee sie in the

debtor there must be a statute containing operative

words of conveyance.

6 3 oy

7 |

In order to convey by grant, the grantor must use

apt and proper words to convey to the grantee.

Agricultural Bank v. Rice, 4 How. 225.

_ 16 Century Digest, Col. 67, See. 55.

* Se .that by the adjudication, the title to his farm

having passed from the debtor to the trustee in bank-

ruptey .of his estate, the debtor, in order to succeed

under the Frazier-Lemke Act in regaining the title

to the farm once owned by him, without the coopera-

‘tion of the lienholder thereon, must point out, a pro-

yision of that Act in some manner entitling him ‘to that

right without such consent.

' At one time it was tho ight that if the Court adopted

the Miner case as the jlaw of this ease, the Radford

case would. have become moot. But counsel are now ~

* of opinion that the fundamental question, is the Fra-

zier-Lemke Act valid in principle and as to type,. the

Fifth Amendment still remains to be considered.

. As , already pointed out, the necessary operative

words yr conveyance t6 revest ‘in the debtor the title

- which had passed to the trustee, are found in para- —

graph (3) of the Act and that paragraph does not op-

erate without the. consent of the lienholder. As the

operative force. and effect of paragraph (7) depends

entirely upon paragraph (3), for no operative words

_ of conveyance are found in paragraph (7), it is quite

immaterial, so far as paragraph (7) is concerned

whether or not an objection 1 is filed as therein wee

' sized.

; es. ar f:

" So the Court must take the Miner case into account. |

As counsel is compelled, its correctness, then as the | -

lienholdér in the proceedings at bar did not consent to

the operation of paragraph (3), the fact that it ob- |

"jected to the operation of paragraph (7) is immaterial. .

If the Court adopts the reasoning of Judge Lind-

ley, that the right of a farmer to repurcha8e his farm

does not exist under the Frazier-Lemke Act unless

[the lienholder consents thereto (and the author of

this document is reluctantly driven to the conclasion™ ..

{ that such result is inescapable), no question under the

Fifth Amendment arises in this proceeding. :

" or as written, under paragraph (3) ofthe Act,

a trustee may not agree to sell all or part of an estate

‘to the debtor without the consent of the lienholder.

‘Therefore, paragraph (3) of the Act, does not op-

erate without the consent’ of the-lienholder. - A lien-- :

holder cannot complain of that ‘to which he consents

IB ts: . fit injuria). Hence it cannot be argued

ph (3) of the Act deprives a lienholder of

a property without due process of law, for noth- ;

ing may result from paragraph (3) of‘the Act, unless

he does consent thereto. |

As to “‘Volenti Non Fit Fajavia: %

Juris, p. 270, note 4.

Bm Fe Maxims (9 Ed.), p. isa

“A person may by his acts * * © waive a’:

right which he might otherwise have under the

Constitution of the United States.’’.

‘I Cooley’s Const. Lim. (8th Ed.), p p.

Pierce v. amare Haieny, 17K, U. 8. 4,648

po

fe. g +}

Shepard v: Barron, 194 U. Ss. 553, 567.

“a

#59 U. S-125.

Greene County v. Lydy, 263. Mo. 77, 87.

Os x

a A corporation. may ‘not complain on constitutional

grounds df a legislative provision te which it consented —

‘by becoming incorporated thereynder. International, os

etc.,

‘Ry. Co. .v. Aniderson County, 246 U. 8. 424, 433.

As to the requirements, under paragraph (3) of

the

Act,” that a trustee enter into an agreement~to sell,

hence the debtor énter into an agreement to Rurehase,

before the right of tit debtr arises to regain his title

~ to the farm once owned by him, note:-

. ' specified thing.”’

The word agreement connotes a mutual obligation.

_1 Words & Phrases (3rd Sexies), p. 374:

An ‘agreement means ‘‘a mutual assent ¢of twq or

more mjnds ) to do a ‘thing. ”- An agreement ‘indicates * °.

ee concurrence of minds.’’ ~ ,

a

a contract is an “agreement iadtinias two or —

more parties for the doing or not doing of sg

some

“To constitute an agreement, there must be |

a proposal by one party and an acce by |

another, whicl must’ be manifested a: @ ap-"

propriate aet.

_ “An agreement contemplates ¢ gusting of

minds. One party may have intended to sell, the

‘other party may have intemded to buy,- yet this

would not be sufficient, Anless the intentioh of each

was in some way unicated from one to the

Oil Corporation vy. Phoenix Refining e4

10

other, me wag understood and agreed to by both.

_ “There is no difference between a ‘contract’

and an ‘agreement.’ ”’

1 Words & Phrases (2d Series), p. 171:

0 ‘s Agreement necessarily embraces two parties

in a contract of sale one to sell aod one to buy”’

(17 Barb. 6, 260, 263). +» er

" In White v. Treat, 100 Fed. 290, 291,’ tie words

‘‘agreement”’ nd ‘‘contract’’ are deemed synonymous:

“* * * it is apparent that to a sale a buyer

is as essential as a seller. No amount of offering

to sell, will make a contract of sale, until someone

accepts the offer by agreeing to buy’’ (100 Fed.

%. , 291, Lacombe, Circuit Judge).

“Contract is the form of obligation which

arises out of the agreement of the parties.’’

1 Page on Contracts, See. 41.

-An agreement of a sale is a contract binding both

parties: ‘to buy and sell. ‘

Loud v. St. Louis Union Trust Co., 318 Mo. 592.

The distinction betocen an \greement to sell and an

agreement ‘to purchase is discussed: Keogh v. Peck,

316 Ill. 318, 38 A. L. R. 1151. Davis v. Roseberry, 95

’ Kan. 411, 3 A. L. R, 564 (note).

' An option is not ‘an agreement to sell’? (3 A. L. R.

566) ; conversely, an agreement to sell is not an option

— to purchase.

From the foregoing, we are a to conclude

11

that paragraphs (3) and (4) of the Fraziér-Lemke Act

contemplate an agreement on the = of the trustee

to sell.

. (H , an agreement on the part of the debtor

to hase), instead of an agreement on the part of

_ the trustee to give the debtor an option to purchase.

Inasmuch therefore, as the tenancy of the debtor

under paragraph (7) is predicated of ap agreement of

the debtor to purchase under paragraph (3), as para-

graph (7) relates only to the ‘“‘manner of payments

and distribution,’? and as paragraph (3) is operative

only with the consent ofthe lienholder, the tenancy

of a debtor under the language of the Act, as written,

depends entirely upon the consent of the lienhoher;

4 hence no question arises in this —— under the.

Fifth Amendment. -

As applied to the facts of this proceeding, the in-

evitable result is that the debtor Radford is not en-

titled to retain his farm as a tenant under the provi-

sions of the Act, as written. .His right to relief herein -

therefore is dependent upon other considerations.

TIL

The District Court in the a herein pend-

ing, as a résult of the filing of th¥ petition by Mr. Rad-

ford for relief under Section 75, National Bankruptcy

Act, ‘is possessed of jurisdiction of the farm of the

debtor without limitation as to the time in. which pre-

vious proceedings may have been instituted in state |

courts.

The power of Congress under the bankruptcy

clause of the Federal Constitution is supreme and dis- wi

places the effect of state action as to any subject with-

in the jurisdiction of Congress and upon which it may

have acted.

In re Watts v. Sachs, 190 U.S. 1.

Stellwagen v. Clum, 245 U. 8S. 605.

International Shoe Co, v. Pinkus, 278 U. 8. 261.

The petition for debtor’s relief by Radford, under

the terms and provisions of Section 75, National Bank-

ruptey Law, as approved March 3, 1933, is governed

inter alia by these provisions of that section:

“*(n) The filing of a petitiof pleading for re- ’

lief under this section shall subject the farmer and

his property, wherever located, to the exclusive -

jurisdiction of the court. In proceedings under

this section, except as otherwise provided herein, _

the jurisdiction and powers of the court, the title,

powers, and duties of its officers, the duties of the

farmer, and the rights and liabilities of creditors,

and of all persons with respect to the property of

the farmer and the jurisdiction of the appellate

courts, shall be the same as if a voluntary petition

for adjudication had been filed and a decree of

adjudication had been entered on the day when

the farmer’s petition or answer was filed.

**(o) Except upon petition made to and granted

by the judge after hearing and report by the

‘ conciliation commissioner, the. following pro-

ceedings shall not be instituted, or if instituted

at any time prior to the filing of a petition under

this section, shall not be maintained, in any court

"ee 13 g

or otherwise, against the farmer or his property,

at any time after the filing of the petition under

this section, and prior to the confirmation or other

disposition of the composition or extension pro-

posal by the court: * * *

(2) Proceedings for a of a mort-

gage onland, * * *

““(p) The prohibitions of subdivision (0). shall:

not apply to proceedings for the collection of

taxes, or interest or.penalties with respect there-

to, nor to proceedings affecting solely property

other than that used in farming operations or

comprising the home or household effects of the

farmer or his family.’’

None of the subdivisions just quoted are yay in

the Frazier-Lemke Act. All are found in the’ Act-of

March 3, 1933, which Aet, under the doctrine recog-

nized in the Rock Island cases, decided by this Court,

April 1, 1935, is clearly constitutional.

* So, that, under the Act of March 3, 1933, followed

_ by the adjudication in bankruptcy of Radford (clearly

valid, 186 U. S. 186), the estate of Radford came within

the plenary jurisdiction of the District Court as a Court |

of Bankruptcy. This jurisdiction is unlimited as to

time or place. Note the language: (n) ‘“property,

wherever located.”’ Note also, the four months period,

an elemehit of Section 67 (ce), (e), National Bankruptcy

Act, is not a part of Section 75, as approved March 3,

1933, nor of the Session Tiaihe Act, approved June

28, 1934.

- 14

National Bankruptcy Law, as approved July 1,

1898, and Section 75 thereof, as approved March 3,

1933, were not writtén frem the same standpoint and —

do not evidence the same intent or spirit, hence differ |

in their interpretation. The Act of 1898 was written

to promote the interests of comnmmerce and from the

standpoint of the creditor. In business it is important

aAnerchant know, within reasonable limits, the extent

of obligations from day to day. For this reason, for

example, his liability as an endorser must be fixed

by protest on the day of the maturity of the paper he

endorsed. So, by parity of reasoning, if such merchant

be a preferred creditor, he should know within a rea-

sonable time if such preference is to be challenged.

So the four months period of limitation as to preferen-

tial transactions is written into the National Bank-

ruptey Law as approved July 1, 1898.

Indeed, it may be admitted, that if a valid (that

is free from fraud) -non-preferential transaction occur

within four months, resulting in a creditor being se-..

cured in circumstances leaving no surplus for distribu-

‘tion among general ereditors, the Bankruptey Court

would not concern itself with such assets; for the Act

of 1898 is for the primary protection of gengral un-

secured creditors gnd deals only incidentally with se-

cured creditors. |

A debtor filing a petition under the general Bank-

ruptcy Law is not interested in the four months rule

as to secured creditors. He is allowed a discharge —

from his debts without limitation as to time, The sub-

15

ject of a discharge is all that affects him under the

Act of 1898. He is not concerned in the question of

validity of securities from a preferential standpoint.

His indebtedness is not. altered by setting aside pref-

erential transaction, for in that event, while prior un-

secured creditors might receive. dividends on their _..

. debts, the prior secured creditor would thereby find .

his indebtedness increased. The total indebtedness of

the bankrupt is not affected by setting aside prefer-

ential transactions; only the manner of distribution

of his assets. .

But the Act of March 3, 1933 (Section 75), is writ-

ten for the purpose of keeping an indebted farmer on

a mortgaged farm, and if possible eventually, ‘fo re-

store such debtor to his possession (Lev. 25: 13).

such a one, the date of his mortgage is quite unim-

portant. The effect thereof ‘only concerns him. To

_ apply the four months rule to a farm mortgage in pro- —

ceedings under Section 75, in effect, would nullify the

law, for within four months prior to March 3, 1933,

few farm mortgages were negotiated. In addition, a

farm mortgage uguafl¥ runs six months before a de-

fault may occur. So a farm mortgage executed within

four months prior to a petition for debtor’s relief filed

under Section 75, as approved June 28, 1934, and which

at the date of the petition might be in default, is peac-

‘tically non-existent.

‘Hence, the limitation of four months stressed in

Straton v. New, 283 U. 8S. 318, is inapplicable to pro-

ceedings under Section 75.

ooo

In Cont. Ill. Nat. Bank & Trust Co. v. Chicago,

Rock Island & Pacific Ry. Co. (April 1, 1935), 79

Sup. Ct. L. Ed. 642, the following rules of law on the

subject of bankruptcies are announced:

(1). Courts of bankruptcy are invested ‘“‘with such

jurisdiction at law and in equity as will enable them

to exercise original jurisdiction in bankruptcy pro-

ceedings. ”” Ke

(2) Courts of bankruptcy are “‘essentially courts

of equity, and their proceedings ay proceed-

ings in equity.”’

(3) The power to issue an injunction when neces-

sary to prevent the defeat or impairment of its juris-

diction is therefore inherent in a court of bankruptcy,

as it is in a duly established court of equity.”

(4) An injunction may issue from a Court of Bank-

' ruptey suspending the ‘enforcement of a lien upon col-

lateral pending further action.

No question as to time was urged in the Rock

Island cases. Indeed, the record will disclose the

pledge in that proceeding was more than four. months

old.

Straton v. New, 283 U. 8S. 318, was approvingly

cited in the Rock Island cases. In Straton v. New,

‘the Court was dealing with a case arising under the

general National Bankruptcy Act and where the lien,

being enforced in a State Court, antedated the bank-

ruptey more than four months. It also ruled in Straton

v. New: “‘And as the lien created by a judgment en-

tered within four months is void, the court of bank-

\

17

_ruptey has jurisdiction to administer the property Te-

gardless of the lien and will restrain the prosecution

of an action to enforce it.”’

But in Section 75, National “Bankruptey Law, ap-

proved March 3, 1 the four months’ provision

found in the general law is omitted.

In re Jacobs, 7 Fed. Supp. 749.

As to the jurisdiction of a Court of bankruptey of .

assets of the debtor subject . to an outstanding lien,

passa

Lazarus v. Prenticn; 288 U. S. 266.

Van Huffel v. Harkelroade, 284 U. S. 225.

Gross v. Irving Trust Co., 289 U. 8. 342.

nd v. Sternberg, 79 L. Ed. 324.

gton on ‘eshventer (3d Ed.), p. 447,

Secs. 2365, et seq.

“The filing of the petition (in bankruptcy)

is an assertion of jurisdiction with a view to the

determination of the status.of the bankrupt and a

settlement and distribution of his estate. The

exclusive jurisdiction of the bankruptcy court is

so far in rem that the estate is regarded as tm

custodia legis from the filing of the petition.’’

Acme Harvester Co. v. Beekman Lumber Co.,

222 U. 8. 300, 307.

In re Looker, 6 Fed. Supp. 571, executions against

a debtor obtaining benefit of Section 74, issued within

four months of filing petition were enjoined.

In re Doelger, 6 Fed. Supp. 776, it was ruled that

on the filing of a petition under Section 74, “from that

18

‘time Seinen the debtor’s property is in’ custodia

legis.”

In re Burgh, 7 Fed. Supp. 184, it- appeared that a

trustee had been appointed for property in a State

Court in 1932. - The Court ruled, with respect to Sec-

tion 74: ““* * * it seems clear to the Court that it

was the intention of Congress * * * to commit to

the courts of bankruptcy exclusive jurisdiction over

the debtor and his property wherever located, whether

the property be subject to liens or otherwise ;’’ hence

the Court may appoint a custodian or receiver ‘of

all of the debtor’s property including that which is

subject to liens.” |

_ In re Jacobs, 7 Fed. Supp. 749, a receiver was ap-

pointed in a State Court in 1932. On June 25, 1934,

a debtor filed his petition under Section 74. Judge

Lindley discussed the four months distinction thereto-

fore prevailing. An extensive quotation was made”

from Isaac v. Hobbs Tie & Timber Co., 282 U. 8. 734.

Judge Lindley ruled that the four months’. limita-

tion under the general bankruptcy law did not apply

to proceedings under Section 74. “‘* * * the four

months period as fixed by Congress was an arbitrary

date and not one in‘any way limited by the Constitu-

tion,”’ hence ‘“‘when Congress saw fit. to extend the

time, it made all cases decided under the statutory

four months provision applicable to the situation ex-

isting under the Present amendment”’ a Fed. Supp.

754):

In re Bradford, 7 Fed: ‘Supp. 665; Judge Chesnut

held it within the power of the Federal Court to stay

<

19

a mortgage foreclosure instituted April 17, 1934, un-

less Subsection (s) was unconstitutional. See opinion

in that case, 4 C. C. A., printed in ful in Mr. Lemke’s

second brief in this case.

In re Miner, 9 Fed. Supp. 1, 11, Judge Lindley sus-

tained the jurisdiction of the bankruptcy Court un-

der Section 75 as against a pending foreclosure.

In re Klein, 9 Fed. Supp. 57, it was ruled that a

bankruptey Court had exclusive jurisdiction of an

equity of redemption in effect. at the date of the pe-

tition. ' |

See also, In re Duffy, 9 Fed. Supp. 166, 169.

In re Kalina, 9 Fed. Supp. 170.

In re Rank, 9 Fed. Supp. 171.

In re Dickirison, 9 Fed. Supp. 419.

Jurisdiction was exercised, Jn re Hanley, 9 Fed.

Supp. 463.” - g

See also, In re O’Brien, 9 Fed. Supp. 892.

In re Granada Hotel Corporation, 9 Fed. Supp.

909.

In re Natural Dry Ginger Ale Corporation, 9 Fed.

= 1003. . - ml

In re Nelson, 9 Fed. Supp. 657. .

Eaves v. Gleen, 9 Fed. Supp. 647.

‘In re Nineteenth & Walnut Streets Corporation,

9 Fed. Supp. 625. ,

In re Belber, 7. Fed. Supp. 762, a pledge was denied

leave to sell a pledge on the ground: ‘Under so-cajled

‘market conditions,’ this stock has no value other than

what the pledgee will let it go for.”’ Affirmed, 72 Fed.

' (2d) 542.

See also: . |

In re McMurray, 8 Fed. Supp. 449.

Federal Lait Bank v. Kurtz, 70 Fed. (2d) 46.

Re —_ County Fuel Supply’ Co., 70 Fed. (2d)

1 ;

Rubenstein v. Nourse, 70 Fed. Ay! 482.

Kimmel vy. Crocker, 72 Fed. ( '

In te Faour, 72, Fed. (2d) ii

Trust Co. v. Fleming’73 Fed. (2d) 423, —

In re, Monsen, 74 Fed. (2d) 411. |

In re Sterba, 74 Fed. (2d) 413. —7 z=

In a Metropolitan P y Houses, 74 Fed. (2d)

In re Greylings Reaity Corporation, 74 Fed. (2d)

Hamilton Gas Co. vy. Watters, 75 Fed. (2d) 176.

In re Kusel, 75 Fed. (2d) 314.

In re Martin, 75 Fed. 618.

: Inasmuch as the District Court in the proceeding

at bar herein had exclusive and plenary jurisdiction

of the farm of Mr. Radford, it had jurisdiction to sell

that farm clear of the lien thereon, and ‘transfer the

lien on the farm to the proceeds derived from the sale

thereof.

Van Huffel v. Harkelroade, 284 U. S. 225.

’ But in selling the farm and transferring the lien

on the farm to a lien on the proceeds, the bankruptey

Court is exercising jurisdiction of an equitable nature.

Consult, The Rock Island cases, decided by this

Court, April 1, 1935.

1 Remington on Bankruptcy (4th Ed.), p. 51, See.

23. | a

*-

Se ° 21 .

. The enforcement of a lien in a Federal Court is-an

exercise of the power of a Court of equity (184. Fed.

199, 202). .

A Court, in exercising the jurisdiction of a Court

of equity in foreclosing an equity of redemption, acts

by grace and not by right, as a Court of conscience |

a not of dis sion, does not permit a lienholder

o “behave fet u ,” por seek its owh,

an rather to bear all things, to endure all things (I -

Cor. 13).

Accordingly, we are reminded that several centuries

ago, a form of mortgage prévailed in England where-

_ by aGortgagor conveyed the title to the security in

fee to the mortgagee, spbject only to a defeasance in

the event the debt was paid on the law day in the

amount and manyer specified in the mortgage. In the

face of direct provisions in the mortgage to the eon-

trary, the Chancellor discovered the equity of redemp-.

tion which gave to a mortgagor who had not complied

precisely with the cofiditions of the mortgage, the right

to redeem therefrom and to regain that $ whieh had for-

merly belonged to him. 4

19 Ruling Case Law, p. 500, Sees. 296, et seq.,

p. 516, Sec. 316.

Eaton on Equity, p, 445, Sees. 214, et seq.

Reeyes, Iilinois Law and Mortgages, p. 3, See. 2.

The cireumstances in which a Court of equity dis-

covered the equity of redemption and displaced the

common’ law ‘theory of mortgages, are discussed.

Clark v. Ra burn, 8 Wall. 318.

41 oye uris, p. 275, See. 2.

Then asa development of thé-equity of redemption |

the Chancellor accorded to the mortgagee as an act

of grace, and not of right, a foreclosure of the equity

of redemption by fixing a time in which the privilege

of redemption. should be exercised, or in default there- —

- of, the property | be sold and the right of —_—

. “foréclosed”’ or cut off.

19 Ruling Case Law, p, 519, See. 319.

LA striking example of the doctrine, the power of

a Court of equity in foreclosing mortgages includes the °

power to” inelose reasonable conditions upon the exer-

cise of the power is the case of Fasdick v. Schall, infra.

A Court of equity has declared that in certain cir-

umstances,. unsecured claims are entitled to priority

over mortgage debts.

10 Enc. U. S. Supp. Ct. (Michie Law Book Co. ),

pp. 571, et seq. . e

A mortgagee must “‘do equity in- order to get

equity. ” ;

Fasdick v. Schall, 99 U. s, 235, 253.

Union Trust Co. v. Souther, 107 U.S. 591, 594.

I Tardy’s Smith on Receivers (2d me) p. 1143,

Sees. 413, et seq.

23 ing Case Law, p. 110, See. 120.

B v. Bowen, At U. 8S. 776, 780.

Kneeland v. American Loan & Trust Co.,

U.S. 89, 97. :

Virginia, ete., Coal Co., v. Central Railroad, etc.,

Co., 170 U. 8. 355, 365.

Southern Ry. Co. v. Carnegie Steel Co., 176 U. S.

257, 282. -

G v: Metropolitan Trust Co., 197 U. 8. 183

e ~7 diversion of income shown).

Ss @

In Kansas City Terminal Ry. Co. v. Central Union

Trust Co., 271 U. 8S. 445, this Court discussed the.

power of a Court of equity, in confirming a sale

-under foreclosure of a mortgage, to require terms and

_conditions, reasonable in their nature to be inserted i in

the decree of confirmation.

As to the power of a Court to impose terms as to

a plan of reorganization in case of the foreclosure of

a mortgage on a railroad:

North American Co. v. St. Louis & S. F. Ry, Co.,

28 Fed. (2d) 174.

Central Union Tr. Co. v. . Mo. K. & Tex. Ry: Co.,

28 Fed, (2d) 176. ©

Kansas City Ter. Ry. Co. vy. ‘Central Union Trust

Co., 28 Fed. (2d) 177.

Volume 7, Legal Topics: ‘‘Some Legal Phases of

Corporate eee Reorganization and Regula-

tion.”’

Under Section 2, clause 5, National Bankruptey

Law, courts of bankruptcy may ‘authorize the busi- .

ness of bankrupts to be conducted for limited periods

by * *°* ‘trustees, if necessary, in the best inter-

ests of the estate.’ | na

1 ye" on Bankruptcy. (4th Ed.), p. 554,

See.

The trustee in bankruptey therefore should be au-

thorized to conduct the business of Radford, as a

farmer, to be conducted by renting the farm in ques-

tion to Radford “for a limited period’’ (a relative.

term).

ee

The extent of the present economic distress prevail-

ing among farmers is disclosed in the original brief

filed on the part of the debtor by Mr. Lust and Mr.

‘Krauthoff (large white book).

The fact that 29 States have passed moratoriums

(consult appendix, brief for petitioner), is also a strik-

ing evidence of the necessity of a reasonable forbear-

ance in the foreclosure of a mortgage on a farm.

The value of farm lands is stabilized by the with-

holding of excessive foreclosures of farms. The daily

press réports substantial improvement in farm values.

The Frazier-Lemke Act has played its part in ac-

complishing this result. A court of equity should

be not less diligent in protecting the ‘‘vine and fig

tree” of an American farmer (Micah 4:4).

, As an example of the power of a court of equity in

granting relief of an equitable natufre in the foreclos-

ure of a mortgage, note.

Equity enforces just rights where the law is in-

adequate.

21 Corpus Juris, p: 195, Sec. 184, note 52. j

In Clark v. Rayburn, 8 Wall. 318, it was held a

decree of foreclosure which allowed no time for the

payment of the debt could not be sustained:

“e * * it was always an incident of the.

remedy that the mortgagor should be allowed a

specified time for the payment of the debt. This

was fixed by the primary decree, and it might be

extended once or oftener at the discretion of the

*

Chancellor, according to the circumstances of the

case.’’

eo Chicago, etc., R. R. Co. v. Fasdick, 106

3 Jones on Mortgages (8 Ed.), p. 480, Sec. 2031.

Indeed the glory of the jurisprudence known as

equity is its flexibility and adaptability to cireum-

stances as they may present themselves (I Kings

8:59). .

Eaton on Equity, p. 1

21 Corpus Jen P66, See. 845.

1 Pom. Eq. Jur. (4 Ed.), p. 122, See. 109; pp.

.212, 213: Equity ‘‘has the power of expansion and of

application to an unlimited variety~of circimstances,

which enables equity to keep abreast with the progress

and changing wants of society.”

The: ‘origin of the doctrine of an equity of redextp-

tion as evidenced, as early as the reign of Charles I

of England by the entry of a decree to the effect that

‘‘the mortgagor had an ‘equity to redeem’ on payment

within’ a reasonable time of principal, interest and’

costs, notwithstanding the forfeiture at law.’’

Eaton on Equity, p. 447, Sec. 215. |

As already pointed out, a mortgage was originally

self-enforcing. Failure of the mortgagor to pay the

debt at the law day of its maturity of itself without

more, perfected the title of the mortgagee. His remedy

thereafter, in the event the mortgagor was in posses~

sion of the premises was ejectment of the former

owner. '

In that state of the law, one braver than his fel-

lows, having failed to pay a mortgage debt on the

law day, appealed to the King as the source of. all law

for relief. . :

That adviser of the King was an ecclesiastic.

Naturally, having studied Isaiah, this ecclesiastic, one

of the early chancellors, thought in terms of redemp-

tion. Hence as he hoped for redemption of his soul,

the chancellor could not do less when it came to re-

demption from a mortgage.

. The spirit which discovered redemption also dis-

covered foreclosure. Inasmuch 4s the chancellor ac-

corded a debtor redemption, and inasmuch as funda-

mentally, there could not be one law for the true fol-

lowers of God and another one for the stranger, the

chancellor decreed it to be fair and just that a mort-

gagor should not be permitted to enjoy twenty years

in which to redeem from a mortgage. theretofore rip-

ened into a title in fee simple. On the contrary, the

_ chancellor foreclosed or cut off the equity of redemp-

tion by fixing a time in which the —— should

take place.

So jealously did courts of ae guard the equity

of redemption that to this day an equity of redemp-

tion may not be released by a mortgagor by way of

inclusion thereof in the mortgage, but. only by way

of subsequent agreement based 7 a new considera-

tion. ;

Clark v. Raybv-n, 8 Wall. 318.

Eaton on Equity, p. 448, Sec. 215; p. 469, Sec. 229.

19 Ruling Case Rud p. ‘502, Sec. ‘398,

. 27

: : '

. Reaves Illinois Law of Mortgages, pp. 11, 12, Sees.

41 Corpus Juris, p. 275,-See. 2.

The doctrine of mortgage foreclosure thus originat-

ing in the thought of redemption, then unfolding by

a recognition of the justice of foreclosure, progressed . |

by adding the incident of sgle of the mortgaged prop-

erty under a decree of foreclosure. | |

The time for thé entry of this decree rested in the

sound discretion of the chancellor.

For example, in Blair vy. Chicago, 201 U. 8. 400;

a Court did not foreclose a mortgage on a street rail-

way without first determining the relations of a mort-

gagor and a municipality. . ,

In Trustees v. K. C. M. & O. Ry. Co., 26 Fed. (2d)

876, a railway was administered in receivership for

fourteen years in order to give the parties in interest

an opportunity to reorganize the road.

In the litigation, a phase of which is reported as

Gibson v. Continental, ete., Trust & Say. Bank, 26

Fed. (2d) 872, a street railway was not sold under

mortgage until the company had procured a new fran-

chise from the city. The receivership extended from

1920 to 1926.

In Baldwin Locomotive: Works v. Missouri, Okla-

homa & Gulf Ry. Co., Judge Hook directed a plan of

reorganization be prepared before the road be sold

under foreclosure. The receivership began in 1913.

The decree of foreclosure was entered in 1919,

In the case of The Missouri, Kansas & Texas Ry.

Co: (consult Kansas City Terminal Ry. Co. v. Central

Union Trust Co., 271 U. S. 445, 28 Fed. (2d) 176, 177),

the road was in receivership over seven years.

In the case of Kansas City Joint Stock Land Bank,

a receiver was appointed in May 1926. The lien of

the bondholders of that company on the assets pledged

as security for their bonds was not foreclosed until

In the Rock Island Cases (April 1, 1935), this

Court recognized the propriety of affording a railway

system a reasonable opportunity in which to reorgan-

ize its financial structure.

In the brief of Reconstruction Finance Corpora-

tion filed in that case will be found a collection of

instances as to the length of time allowed to railway

companies before decrees of foreclosure are entered.

Courts of equity have decided: .

(1) An appointment of a receiver in a suit to fore-

close a mortgage is an act of grace on the part of the

Court and.not enforceable as a contract right. —

19 Ruling Case Law, p. 562, Sec. 370.

23 Ib., p. 10, See. 4.

; 2 — Illinois Law of Mortgages, p. 610, Sec.

(2) Rents pending expiration of redemption period

are not impoundable at the instance of a.mortgagee as

a matter of right. |

2 Reeve Illinois Law of Mortgages, p. 636, Sec. .

551.

(3) A decree of foreclosure should allow a. reason- .

able time in which the debtor may pay the amount

found due.on the lien being enforced.

8 Wall. 318.

2 Reeve Illinois Law of Mortgages, p. 731, Sec.

649; p. 733, Sec. 651; p. 747, See. 666.

“ Mortgage sales will be controller by the court

so that no injustice will be done either ‘party.”’

- 19 Ruling Case Law, p. 570, Sec. 381. ‘

+

(4) The lien of the security being foreclosed may

be displaced by allowing préferential claims;

1 Tardy’s Smith on Receivers (2 Ed.), p. 1143,

Sec. 413;

And by the issuance of receiver’s certificates. ~

2 Tardy’s Smith .on Réceivers (2 Ed.), p. 1575,

- See. 541.

(5) A court of equity may fix an — price to be

. bid at the sale it orders. made.

(6) On a bill to redeem, time is apowes in which

to make the redemption.

2 Jones on Mortgages (8 Ed.), p. 904, Sec. 1413.

(7) A court of equity may refuse to confirm a sale

made under its decree.

19 Ruling Case Law, p. 581, Sec. 394.

(8) A court of equity may enforce conditions, such’

as a fair and reasonable plan of reorganization as the

price of the decree of sale and confirmation thereof

(28 Fed. (2d) 177).

: 30

(9) A court of equity may protect a title acquired

- by virtue of its decree (221 Fed. 545).

Equity is a progressive science. Twenty-nine states

have declared a moratorium (Appendix Petitioner’s

Brief, 290 U. 8. 398). Congress clearly attempted to =

do so in the Frazier-Lemke ‘Act. Can equity do less?

In this connection, it may be intimated, that re-

financing a farm and refinancing a railroad do not

present the identical problem and are not governed

-. by the same rule. But the reverse of this state- ,

ment is true. ‘‘A time there was” ere our Nation’s

financial ‘‘griefs began’’ when we enjoyed an indi- .

vidualistie concept of life and living. ‘The logic

of events, which as Mr. Frederic R. Condert has

observed, is more powerful than the logic of Aris-

totle, has replaced neighborly helpfulness, whereby

. One man loaned to another, and loaning oft did not

“lose both loan and friend,”’ by an organized system .

. Of loaning money on the security of farm mortgages.

Farmers ‘desiring to borrow money in these strenuous

_ . times, as a practical proposition, have but. one source

of supply, Federal Farm Mortgage Corporations. All

other sources of farm credit on real estate security for

the time being are dried and sterile. The record does

not show how thuch money Radford can borrow from

such institutions, nor whether or not the Louisville

Joint Stock Land Bank will accept in discharge of the

dgbt due it, the money which Radford may be able to

borrow in the manner stated.

81

Mr. Radford can only refinance his farm indebted-

‘ ness through a system now in existence or one here-

after organized. The problem of the debtor in this

proceeding requires time ‘for its solution. A court of

equity which gives time to a railroad in which to reg

\ganize its. financial structure cannot do less for the

“embattled farmers,” fit descendants of those who at

| Concord, “fired the shot heardé round the world”’ and

the ashes of whose kindred mingle with the soil of

France. |

Cox v..Wood, 247 U. 8. 3.

Selective Draft Law Cases, 245 U. S. 366.

Consult brief of John W. Davis, 245 U. S. 368.

_ Congress is- endeavoring to _Temedy the situation

(Senate Bill No. 2416, Rep. No.. 498). A like bill is

pending in the House of Representatives introduced

by Mr. Lemke (H. R. 5452). Pending congressional

: action, this Court should preserve the status quo of

farm indebtedness and prevent foreclosures of farm

mortgages, under such terms.and conditions as may

be just and reasonable.

CONCLUSION.

The. following recommendations are submitted for

the consideration of the. Court:

(1) That the Court, at this time, for the informa-

tion and guidance of all parties in interest reaffirm .

the doctrine of the Rock Island, cases, and hold that

the underlying principle and dominant theory of the

Frazier-Lemke Act, relief to the debtor 4s as well ’ as

protection to the creditor (‘‘equal and exact justice

to all men’’) be sustained as constitutional. -

(2) That the Court restore the case to the docket

' for reargument on the following propositions:

(a) The effect of the doctrine of the Miner case ©

upon the Frazier-Lemke Act;

(b) The inherent power of a Court of waieiie

to impose equitable terms in the foreclosure of a mort-

gage upon property and its jurisdiction of mortgaged

property owned by the debtor. '

' Or in the alternative:

(a) That the Court point out to Congress the effect

of its action in making the operative force and effect

of paragraph (3) of the Frazier-Lemke Act depend

upon the consent of the lienholder.

(3) That the proceeding be remanded to the Dis-

trict Court with authority in that Court, to protect .

. the debtor in the possession of his farm, pending a re-

_ organization of the farm loan system of America and

Congressional action, upon such terms and in such

manner as to that Court may deem just and reason-

able.

(4) That the debtor be accorded such other and

further relief as to the Court may seem just and

equitable.

Epwin" A. tides

Pro Se.