Source: https://supreme.justia.com/cases/federal/us/310/1/
Timestamp: 2019-04-20 20:21:20+00:00

Document:
l. Under § 75 of the Bankruptcy Act, prior to the amendment of August 28, 1935, an order of the bankruptcy court, made in a proceeding for composition and extension, and permitting a sheriff's sale to be made, subject to confirmation, under a decree of foreclosure previously entered in a state court, was erroneous if not granted on petition and after hearing and report by the conciliation commissioner, but was not void, and could not be attacked collaterally in a state court. P. 310 U. S. 7.
2. Jurisdiction of a state court in foreclosure, suspended by the institution of a proceeding under § 75 of the Bankruptcy Act, again attached upon dismissal of the bankruptcy case and empowered the state court to confirm a foreclosure sale previously made and to order a sheriff's deed. P. 310 U. S. 8.
3. Reinstatement under the Act of 1935, supra, of a proceeding under 75(s) previously dismissed, did not invalidate a sheriff's sale and deed which were confirmed and authorized by a state court acting within its jurisdiction during the interval between the dismissal of the bankruptcy case and the motion to reinstate it. P. 310 U. S. 8.
4. There is no occasion to refer a cause under § 75 of the Bankruptcy Act to a conciliation commissioner for the administration of property which, by reason of foreclosure proceedings already consummated in a state court, no longer belongs to the debtor. P. 310 U. S. 10.
Certiorari, 309 U.S. 643, to review a judgment reversing the district court in bankruptcy which, in a proceeding under § 75(s), denied rehearing of an order of disclaimer and refused to refer the cause to a conciliation commissioner.
September 1, 1932, the petitioner instituted a mortgage foreclosure suit against respondent in the Common Pleas Court of Madison County, Ohio. The cause was prosecuted to judgment, and advertisement was made of a sheriff's sale of the property to take place November 24, 1934.
November 19, 1934, the respondent filed his petition in the United States District Court under § 75 of the Bankruptcy Act, [Footnote 1] and the court issued an order restraining proceedings in the foreclosure suit until the further order of the court.
November 23, 1934, the District Court, on application of the petitioner, without reference of the matter to a conciliation commissioner, modified the restraining order to permit the sale of the premises as advertised, but enjoined any further proceedings, particularly confirmation of the sale or execution of sheriff's deed.
November 24, 1934, the sheriff, as permitted by the modification of the restraining order, held the sale as advertised. The petitioner bid the property in, and the sheriff made return of the sale.
December 14, 1934, the District Court approved the respondent's petition under § 75 of the Bankruptcy Act and ordered a reference to a conciliation commissioner. The latter reported that no agreement could be reached between the respondent and his creditors.
May 27, 1935, this court held certain features of § 75(s) unconstitutional. Louisville Joint Stock Land Bank v. Radford, 295 U. S. 555.
August 26, 1935, on the application of the respondent, the District Court ordered that, because of the unconstitutionality of § 75(s), the respondent's petition and amended petition be dismissed, and that the case be terminated.
"This Act shall be held to apply to all existing cases now pending in any Federal court, under this Act, as well as to future cases, and all cases that have been dismissed by any conciliation commissioner, referee, or court because of the Supreme Court decision holding the former subsection (s) unconstitutional, shall be promptly reinstated, without any additional filing fees or charges."
September 10, 1935, the sheriff's sale was confirmed by the Common Pleas Court. Subsequently this action was, on appeal by respondent, affirmed by the Court of Appeals of Madison County.
September 11, 1935, the sheriff's deed was delivered to the petitioner, and was recorded.
September 24, 1935, the respondent moved the District Court for reinstatement of his bankruptcy case. The motion was granted, but apparently no amended petition has been filed, nor any adjudication entered under § 75(s).
May 8, 1936, the petitioner moved the District Court for an order of disclaimer of the real estate in question.
October 22, 1936, an order of disclaimer was entered. October 26, a petition for rehearing was filed by the respondent and was entertained by the court.
April 17, 1937, the respondent moved the District Court that the proceedings in bankruptcy be referred to a conciliation commissioner pursuant to § 75(s).
May 6, 1937, the District Court overruled the respondent's petition for a rehearing of the order of disclaimer.
May 8, 1937, the District Court overruled the motion of the respondent to refer the cause to a conciliation commissioner.
May 27, 1937, the respondent petitioned the District Court for an appeal to the Circuit Court of Appeals from the order denying his petition for rehearing of the order of disclaimer and from the order denying his motion to refer the cause to a conciliation commissioner and, on the same date, the District Court allowed an appeal.
June 3, 1937, the respondent petitioned the Circuit Court of Appeals for leave to appeal from the orders of the District Court, and June 7, 1937, leave was granted.
importance of the question involved in the administration of the Bankruptcy Act, we granted certiorari.
The petitioner asserts that the court below erred, as the action of the District Court modifying the restraining order and permitting a sale of the mortgaged premises was authorized by the bankruptcy act, and, if not, it is binding upon the respondent, since he failed to except to or appeal from it.
The petitioner further asserts that the respondent's procurement of the termination of the original bankruptcy case amounted to a waiver of any irregularity which occurred while the proceeding was pending, and precluded the respondent from objecting to such irregularity. Further, petitioner contends that the sale made by the sheriff did not change the legal status of the debtor and his property, since his right of redemption, under Ohio law, remained until confirmation of the sale by the state court, and, although that court was without jurisdiction while the original bankruptcy proceeding was pending, it regained such jurisdiction by the termination of the bankruptcy case, and had exclusive jurisdiction of the parties and the subject matter when the decree of confirmation was entered. The claim is that the decree of confirmation cannot be collaterally attacked in the bankruptcy court.
The respondent, on the other hand, argues that the express provisions of § 75, in force at the time the sale was made, rendered void the District Court's permission to make the sale and the sheriff's action in making it, and that confirmation or delivery of a deed can give no validity to such void action, which the bankruptcy court should therefore have disregarded.
First. The action of the District Court in permitting the holding of the sale was not void, but voidable, and the sale made pursuant thereto was not void.
"(e) . . . After the filing of the petition and prior to the confirmation or other disposition of the composition or extension proposal by the court, the court shall exercise such control over the property of the farmer as the court deems in the best interests of the farmer and his creditors."
"(n) The filing of a petition pleading for relief 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 proceedings 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 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 proposal by the court:"
"(6) Seizure, distress, sale, or other proceedings under an execution or under any lease, lien, chattel mortgage, conditional sale agreement, crop payment agreement, or mortgage."
provide "The prohibitions of subsection (o) shall apply to all judicial or official proceedings in any court or under the direction of any official. . . ." This amendment was made after the dismissal of the bankruptcy case.
Exclusive jurisdiction of the debtor and his property vested in the District Court on the filing of the petition. Up to that time, jurisdiction of the debtor and the mortgaged property was in the state court. Without action by the District Court, the state court could not have proceeded further. [Footnote 5] But, without changing the status of the debtor's right of redemption, the federal court gave permission to the State officer to hold the sale. The sale was, however, incomplete until confirmation by the court. [Footnote 6] Until confirmed, it amounted to an unaccepted offer to purchase. No sale was consummated while the bankruptcy proceeding was pending.
Second. The termination of the bankruptcy proceeding restored the jurisdiction and power of the state court, and its further proceedings in the foreclosure suit were not subject to attack in the bankruptcy court.
Although the state court's jurisdiction was superseded by that of the bankruptcy court, it again attached upon the dismissal of the bankruptcy case, and, thenceforward, as respects the foreclosure suit and the state court's procedure, it was as if no bankruptcy case had ever existed. With jurisdiction of the parties and the subject matter, the state court entered a decree confirming the sale and authorizing a deed, the sheriff executed his deed, which was duly recorded, and the petitioner went into possession as purchaser of the mortgaged premises. Thereafter, the respondent moved for reinstatement of the bankruptcy case, and his motion was granted. In the interim, no bankruptcy cause was pending, and the state court had jurisdiction to proceed as it did.
has been completed and deed delivered to the sheriff's vendee prior to the filing of a petition under § 75. [Footnote 10] The provision for the reinstatement, upon the debtor's motion, of a proceeding theretofore dismissed and finally terminated, cannot affect the jurisdiction of the court conducting the foreclosure proceeding when no bankruptcy cause was pending.
Wayne United Gas Co. v. Owens-Illinois Glass Co., 300 U. S. 131, relied upon by the respondent, is not in conflict with our decision. There, a petition in bankruptcy filed under § 77B was dismissed by the bankruptcy court not on motion of the bankrupt, but at the instance of mortgage creditors and over the bankrupt's objection. In due time, a petition for rehearing was filed. With notice of the filing of this petition for rehearing, and that it would be set for hearing before the bankruptcy court, the creditors took further steps in a foreclosure proceeding pending in a state court. The District Court entertained the petition for rehearing and an amended petition. The creditors who were prosecuting the foreclosure proceeding in the state court appeared and were heard in opposition.
In entertaining the petition for rehearing, the District Court found that good cause existed for vacation of its order of dismissal and reconsideration of the cause, that the application for rehearing had been seasonably presented, and that no rights had vested in reliance upon its earlier order of dismissal which would be disturbed by setting aside the order.
to consummate the foreclosure sale. We held that, in the circumstances, no rights were acquired under the state court proceedings, since termination of the bankruptcy case did not occur until final disposition of the efforts in the District Court and on appeal to reverse the decree of dismissal.
The District Court was right in refusing to refer the reinstated cause to a conciliation commissioner. Since the foreclosure proceedings had been completed and title had passed thereunder prior to the filing of the debtor's petition for reinstatement, it would have been a vain thing to refer the cause to a conciliation commissioner for administration of property which no longer belonged to the debtor. [Footnote 11] We have no occasion to pass upon the authority of the court to enter an order of disclaimer. It is sufficient that the court's action in refusing to refer the cause to a conciliation commissioner was justified. That order, we think, should have been affirmed.
of the Common Pleas Court. An issue of fraud alleged to have been practiced upon the debtor to obtain his withdrawal of his original bankruptcy proceeding was there finally decided against him.
Act of March 3, 1933, c. 204, 47 Stat. 1467, 1470.
Subsection (s) was added to Section 75 by the Act of June 28, 1934, c. 869, 48 Stat. 1289.
Act of August 28, 1935, c. 792, 49 Stat. 942.
Byerly v. Union Joint Stock Land Bank of Detroit, 106 F.2d 576.
Kalb v. Feuerstein, 308 U. S. 433.
Bassett v. Daniels, 10 Ohio St. 617, 619; Reed v. Radigan, 42 Ohio St. 292, 294.
Compare John Hancock Mutual Life Insurance Co. v. Bartels, 308 U. S. 180.
Thompson v. Tolmie, 2 Pet. 157, 27 U. S. 163; Voorhees v. Bank of United States, 10 Pet. 449; Florentine v. Barton, 2 Wall. 210; Cooper v. Reynolds, 10 Wall. 308; McNitt v. Turner, 16 Wall. 352, 83 U. S. 366; Simmons v. Saul, 138 U. S. 439; Noble v. Union River Logging R. Co., 147 U. S. 165, 147 U. S. 173; Insley v. United States, 150 U. S. 512.
See Wright v. Union Central Life Ins. Co., 304 U. S. 502, 304 U. S. 508.
Compare Wright v. Union Central Life Ins. Co., supra.
MR. JUSTICE BLACK, MR. JUSTICE DOUGLAS, and MR. JUSTICE MURPHY, dissenting.
We believe that to deny this farmer the benefits of the Act because the purchase by the mortgagee at the Sheriff's sale was confirmed during the short interval between the dismissal of his petition and its reinstatement would be largely to defeat the purposes of the Act.
Instead of appealing, the farmer, within the thirty-day period, prayed relief from the dismissal decree by reinstatement in the District Court itself. In his application for reinstatement, he alleged that dismissal of his petition had been induced by the deliberate misrepresentations of the mortgagee bank, that he had no notice of the consummation of the Sheriff's sale until several days after it took place, and that he wished to avail himself of Section 75 as amended August 28. Upon the prayer "that his . . . proceeding . . . be reinstated as of the date of its . . . dismissal," the case was reinstated. We do not understand that either the power of the bankruptcy court to reinstate or the reinstatement which was in fact granted is questioned.
Otherwise, even appeal might be wholly unavailing and futile. When a court of bankruptcy reinstates a case previously retired from the docket, as this farmer's case was reinstated, the court reconsiders the cause on the merits upon the original, as well as any supplemental, petitions unless rights have "intervened which would render it inequitable to reconsider the merits." Wayne Gas Co. v. Owens Co., 300 U. S. 131, 300 U. S. 137-138. We find no intervening equities here.
of sale, after dismissal, had finally divested the bankrupt of all title to its foreclosed property, leaving no property for administration by the bankruptcy court (and the controversy was therefore moot).
"went forward with the proceedings in the state court, looking to a sale of the debtor's property, with full knowledge that a rehearing might be granted. . . ."
Id., 300 U. S. 135.
"the power, for good reason, to revise its judgments [of dismissal and to reinstate] upon seasonable application and before rights [had] vested on the faith of its action."
Id., 300 U. S. 137-138. And its general power to do so, at least during the period allowed for taking an appeal, [Footnote 2/9] was reinforced by recognition of the specific statutory right of reinstatement in the amended 75(s), which sprang into being only two days after dismissal of this farmer's petition. Paralleling the situation presented by the Wayne case, not only was the mortgagee purchaser here a party to the § 75 proceeding, but the state court itself may be said to have acted with knowledge that the dismissal -- of which it was notified -- did not necessarily represent the last step in the Federal court proceeding. Cf. id., 300 U. S. 135.
the Act. [Footnote 2/10] Title to a farmer's property acquired in the manner pursued by petitioner cannot limit the power of the bankruptcy court to afford the protection of, and to enforce, this remedial legislation.
Louisville Joint Stock Land Bank v. Radford, 295 U. S. 555.
As we view the effect of reinstatement, it is unnecessary to determine whether the bankruptcy court's order was not merely erroneous, but void.
"An appeal is a proceeding in the original cause, and the suit is pending until the appeal is disposed of. . . . When the final judgment was reached, it determined the rights of [the parties] ab initio. . . ."
MacKenzie v. Engelhard Co., 266 U. S. 131, 266 U. S. 143.
"Where a decree has not been enrolled, or where it is subject to modification upon motion, or where the court might grant a rehearing, or where an appeal might be taken, or where the costs had not been taxed, or where no execution had issued, it not being in condition to issue execution, the case could not be said to have reached that stage where it could be said it was not pending in that court."
Brannon v. Kentucky, 162 Ky. 350, 357, 358, 172 S.W. 703, 706. Cf. State v. Tugwell, 19 Wash. 238, 52 P. 1056; Bloom v. People, 23 Colo. 416, 48 P. 519; State ex rel. Andreu v. Canfield, 40 Fla. 36, 44, 23 So. 591; Brown v. Campbell, 100 Cal. 635, 646, 35 P. 433; Ex parte Howland, 3 Okl.Cr. 142, 104 P. 927.
Wayne Gas Co. v. Owens-Illinois Glass Co., 91 F.2d 827.
Cf. In re Price, 99 F.2d 691, 694.

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