Source: https://supreme.justia.com/cases/federal/us/304/502/
Timestamp: 2019-04-22 18:01:51+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 304 › Wright v. Union Central Life Ins. Co.
1. The filing by a farmer debtor of a petition for composition and extension, and an amended petition to be adjudged bankrupt, under § 75 of the Bankruptcy Act before its amendment by the Act of August 28, 1935, did not bring within the control of the bankruptcy court mortgaged land listed in the schedules as his property and of which he acquired the equity during the proceeding, but in which he held no interest when the petitions were filed. P. 304 U. S. 507.
2. Land in which a farmer debtor had an equity of redemption, but which was not subject to administration in a pending proceeding under § 75 of the Bankruptcy Act because his interest in it was acquired after the filing of his petition, was not brought within the jurisdiction by the enactment of the amendatory Act of August 28, 1935, and the filing of an amended petition under subsection (s) as amended, where those events occurred after his interest had been extinguished by a foreclosure of the mortgage in a state court followed by a judicial sale of the land and expiration of the period for redemption allowed by the state law. P. 304 U. S. 508.
3. Land subject to mortgage was scheduled by a farmer debtor as his property, in a proceeding for composition and extension brought under § 75 of the Bankruptcy Act. He had no interest in the land when the petition was filed, but later received a conveyance of it from owners of the equity of redemption. The mortgage was foreclosed and the mortgagee bought in the land at a judicial sale, but the period for redemption allowed by the state law had not expired before § 75 was amended by the Act of August 28, 1935, and the debtor filed his petition to be adjudged bankrupt, under subsection (s), as so amended. Held, applying amended subsection (n), that, upon the filing of the amended petition, the property was brought within the control of the bankruptcy court. and the time for redemption was extended. P. 304 U. S. 509.
applied against a mortgage creditor who foreclosed by suit in an Indiana court and bought in the land at judicial sale, but as to whom the right of the debtor to redeem, under the Indiana law, had not expired when his petition to be adjudged bankrupt was filed under § 75, as amended. P. 304 U. S. 513.
The provision is within the bankruptcy power, and not inconsistent with the rights of the creditor-purchaser under the due process clause of the Fifth Amendment. It is not an invasion of power reserved to the State by the Tenth Amendment. P. 304 U. S. 515.
91 F.2d 894 affirmed in part, reversed in part.
Certiorari, 303 U.S. 630, to review the affirmance of two orders of the District Court in bankruptcy, the one striking certain described real estate from the debtor's schedules, the other refusing to permit an amendment of the schedules.
Petition for writs of certiorari to the United States Circuit Court of Appeals for the Seventh Circuit was granted by this Court to review the judgments in two appeals brought to the lower court by petitioner here. Wright v. Union Central Life Ins. Co., 91 F.2d 894. The judgments affirmed two orders of the District Court of the United States for the Northern District of Indiana, entered there in proceedings under § 75 of the Bankruptcy Act, instituted by Wright.
order refused to permit the debtor to amend the schedules by showing the circumstances under which the debtor claimed an interest in the same real estate covered by the earlier motion. The correctness of the orders depends largely upon the constitutional validity of certain provisions of § 75(n) of the Bankruptcy Act, as amended by § 4 of the Act of August 28, 1935, 49 Stat. 942. These provisions, held unconstitutional by the lower court, operate to extend the period of redemption from a foreclosure sale allowed the mortgagor under state law. To decide this important constitutional question, our writs of certiorari were issued. In view of § 1 of the Act of August 24, 1937, c. 754, 28 U.S.C. § 401, [Footnote 1] enacted subsequent to the decision of the case below, the Court certified to the Attorney General the fact that the constitutionality of an Act of Congress affecting the public interest was drawn in question in this cause. The Attorney General disclaimed intention to intervene.
on a tract of land in Indiana, containing 80.31 acres, to secure a note of $3,000. At the same time, the same parties executed another mortgage to the respondent on a different tract of land containing 200 acres, also in Indiana, to secure a note of $9,000. In 1931, the first tract was deeded to petitioner's son, and three separate forty-acre parcels from the second tract were deeded to his wife, daughter and son-in-law respectively. The property was conveyed subject to definite portions of the indebtedness, but without an assumption of any of the obligation by the grantees.
On January 3, 1934, respondent brought suit to foreclose the smaller mortgage, joining as defendants petitioner and his son. Judgment of foreclosure was entered, June 9, 1934, and on July 12, 1934, the 80.31-acre tract was sold, on the foreclosure sale, to respondent. Respondent received a duly executed sheriff's certificate of sale. Delivery of final deed was delayed in view of the one-year period of redemption allowed to mortgagors by Indiana statute. Ind.Ann.Stat., Burns' 1933, §§ 2-3909, 2-4001.
On October 11, 1935, petitioner amended his petition as authorized by § 75(s) of the Bankruptcy Act, as amended August 28, 1935, following the invalidation by the decision in Louisville Bank v. Radford, 295 U. S. 555, of § 75(s) as originally drafted, 48 Stat. 1289, and again asked to be adjudged a bankrupt.
On July 20, 1936, the one-year redemption period having expired, respondent received from the sheriff a final deed for the 200-acre tract. On July 29, 1936, respondent filed a motion in the District Court for Northern Indiana, where the proceedings under § 75(s) were pending, to strike from petitioner's schedules, which had been filed October 29, 1934, these 280.31 acres of land.
both orders of the District Court, striking the land from the schedules and denying leave to amend. The appeals were consolidated in the Circuit Court of Appeals. As stated in the opening paragraph of this opinion, that court affirmed both orders of the District Court. These judgments are under review here.
A further aspect of the controversy between petitioner and respondent may be noted. On September 13, 1935, prior to the debtor's filing of an amended petition under § 75(s) as amended, respondent instituted an action in the state court for possession of the 80.31 acres. A judgment overruling a defense grounded on the bankruptcy proceedings, and awarding possession and damages to respondent, was affirmed by the Supreme Court of Indiana on April 2, 1937. Wright v. Union Central Life Ins. Co., 7 N.E.2d 206. A similar judgment with respect to the rest of the land was affirmed October 26, 1937, Wright v. Union Central Life Ins. Co., 10 N.E.2d 726. By temporary restraining order of the Circuit Court of Appeals, and subsequent stay of mandate, respondent has been restrained from taking possession of the land.
estate under the Bankruptcy Act. [Footnote 6] Nothing in § 75 as it now stands indicates any intention that the bankruptcy courts assume control over land not previously within the jurisdiction of a bankruptcy court and already completely divorced from any title of the debtor.
(b) On October 29, 1934, when Wright filed his original petition under § 75, he was undoubtedly the owner of 80 acres out of the 200-acre tract. He had never conveyed away these 80 acres; no proceedings to foreclose them had been begun. These 80 acres were clearly within the jurisdiction of the bankruptcy court, but we shall not give them separate discussion, for they are controlled a fortiori by our ruling with respect to the other 120 acres out of the 200-acre tract.
place of the subsection (s) held invalid in Louisville Bank v. Radford, 295 U. S. 555. This new subsection (s) was sustained in Wright v. Vinton Branch, 300 U. S. 440. Secondly, the petitioner, on October 11, 1935, filed a second amendment to his petition for composition, and was "duly adjudged a bankrupt." Both of these events are significant in reasoning out the status of the 120 acres.
into the jurisdiction of the Bankruptcy Court, and we think it had that effect.
Second. The conclusion that all the lands in controversy, except the 80.31-acre tract, are within the jurisdiction of the Bankruptcy Court under the petitioner's amendment asking to be adjudged a bankrupt and are lands, subject to petitioner's right of redemption, as extended by subsection (n) of § 75, requires the reversal of the judgments below as to these lands unless the provisions of § 75(n), extending the period of redemption, are unconstitutional. Respondent insists that these provisions are a direct invasion of the state's rights under the Tenth Amendment, and violative of the respondent's own rights, by virtue of its title acquired by purchase at the judicial sale, in contravention of the Fifth Amendment.
sale and now holds a right of redemption is, for all practical purposes, in the same debt situation as an ordinary mortgagor in default; both are faced with the same ultimate prospect -- either of paying a certain sum of money or of being completely divested of their land. We think the provision for the extension of the period of redemption comes clearly within the power of the Congress under the bankruptcy clause. But respondent presses a further argument that the Fifth and Tenth Amendments are violated.
(a) The Fifth Amendment is said to be violated, and the property of respondent, the purchaser at the judicial sale, taken without due process [Footnote 17] by the provision for extension of the time of redemption. Section 75(n) provides that "the period of redemption shall be extended . . . for the period necessary for the purpose of carrying out the provisions of this section." The stay may be approved for the period during which the debtor seeks to effect a composition, [Footnote 18] and, as contemplated by § 75(s), for a moratorium period not exceeding three years during which the court's equitable supervision over the land continues, and a reasonable rental is required. [Footnote 19] That such an extension is consonant with the due process clause of the Fifth Amendment is indicated by our decision in Home Bldg. & Loan Assn. v. Blaisdell, 290 U. S. 398, where we held that neither the due process clause of the Fourteenth Amendment nor the contracts clause was violated by an emergency state statute authorizing extension of the period of redemption from foreclosure sales for a just and equitable period not exceeding two years, conditioned on payment by the mortgagor of a reasonable rental, as directed by the court.
The mortgage contract was made subject to constitutional power in the Congress to legislate on the subject of bankruptcies. Impliedly, this was written into the contract between petitioner and respondent.
"Not only are existing laws read into contracts in order to fix obligations as between the parties, but the reservation of essential attributes of sovereign power is also read into contracts as a postulate of the legal order. [Footnote 20]"
And the fact that, in this case, the purchaser at the foreclosure sale was also the mortgagee is not a determining factor. Any purchaser at a judicial sale must purchase subject to the possibility of the exercise of the bankruptcy power in a manner consonant with the Fifth Amendment.
We have held that § 75(s) does not unconstitutionally affect the rights of the mortgagee. [Footnote 21] We do not think the provision for extension of the period of redemption in § 75(n) is invalid. The rights of the purchaser are preserved, the possibility of enjoyment is merely delayed. The rights of a purchaser who, under the state law, is entitled to the redemption money or possession within a year, are not substantially different from those of a mortgagee entitled, on the maturity of the obligation, to payment or sale of the property.
"would be a direct invasion of the powers reserved to the State by the Constitution, and a violation of [respondent's] property rights theretofore determined by the courts of the Indiana in accordance with the law of that State. "
"A court of bankruptcy may affect the interests of lienholders in many ways. To carry out the purposes of the Bankruptcy Act, it may direct that all liens upon property forming part of a bankrupt's estate be marshaled, or that the property be sold free of encumbrances and the rights of all lienholders be transferred to the proceeds of the sale. Van Huffel v. Harkelrode, 284 U. S. 225, 284 U. S. 227. Despite the peremptory terms of a pledge, it may enjoin sale of the collateral if it finds that the sale would hinder or delay preparation or consummation of a plan of reorganization. Continental Illinois Nat. Bank & Trust Co. v. Chicago, R.I. & P. Ry. Co., 294 U. S. 648, 294 U. S. 680-681. It may enjoin like action by a mortgagee which would defeat the purpose of [§ 75] subsection (s) to effect rehabilitation of the farmer mortgagor."
Property rights do not gain any absolute inviolability in the bankruptcy court because created and protected by state law. Most property rights are so created and protected. But if Congress is acting within its bankruptcy power, it may authorize the bankruptcy court to affect these property rights, provided the limitations of the due process clause are observed.
Insofar as the judgments below struck from the schedules the 80.31-acre tract and refused to permit amendment to show the character of appellant's interest, they are affirmed. As to the rest of the land in question, they are reversed.
"Whenever the constitutionality of any Act of Congress affecting the public interest is drawn in question in any court of the United States in any suit or proceeding to which the United States, or any agency thereof, or any officer or employee thereof, as such officer or employee, is not a party, the court having jurisdiction of the suit or proceeding shall certify such fact to the Attorney General. In any such case, the court shall permit the United States to intervene and become a party for presentation of evidence (if evidence is otherwise receivable in such suit or proceeding) and argument upon the question of the constitutionality of such Act. In any such suit or proceeding, the United States shall, subject to the applicable provisions of law, have all the rights of a party and the liabilities of a party as to court costs to the extent necessary for a proper presentation of the facts and law relating to the constitutionality of such Act."
"that all the steps under said § 75 were taken; that later petitioner (Wright) amended his petition under subsection (s) of § 75, as amended August 28, 1935."
By stipulation, the allegations of the answer were admitted as evidence. There is apparently no issue as to the fact of the filing of a petition in bankruptcy on December 19, 1934.
Apparently his wife had died in the meanwhile. The record indicates that she died prior to May 27, 1935.
Everett v. Judson, 228 U. S. 474, 228 U. S. 478; Local Loan Co. v. Hunt, 292 U. S. 234, 292 U. S. 244; 4 Remington, Bankruptcy, §§ 1377, 1395, 1400; 1 Collier, Bankruptcy, p. 1641.
In considering this 80.31-acre tract, we are not concerned with such property acquired subsequent to the filing under § 75 as would be controlled by § 75(n) as amended by the Act of August 28, 1935.
"In proceedings under this section, except as otherwise provided herein, the jurisdiction and powers of the courts, 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, asking to be adjudged a bankrupt, was filed with the clerk of court or left with the conciliation commissioner for the purpose of forwarding same to the clerk of court."
"A sheriff's certificate, however, after the expiration of the year for redemption, invests the holder with an equitable estate in the land of such high character that it only requires his demand for a deed to ripen it into an absolute legal title."
Hubble v. Beery, 180 Ind. 513, 519, 103 N.E. 328, 330.
"(n) The filing of a petition or answer with the clerk of court, or leaving it with the conciliation commissioner for the purpose of forwarding same to the clerk of court, praying for relief under section 75 of this Act, as amended, 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. The words 'period of redemption,' wherever they occur in this section, shall include any State moratorium, whether established by legislative enactment or executive proclamation, or where the period of redemption has been extended by a judicial decree. In proceedings under this section, except as otherwise provided herein, the jurisdiction and powers of the courts, 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, asking to be adjudged a bankrupt, was filed with the clerk of court or left with the conciliation commissioner for the purpose of forwarding same to the clerk of court."
"(c) At any time within five years after this section takes effect (March 3, 1933), a petition may be filed by any farmer, stating that the farmer is insolvent or unable to meet his debts as they mature, and that it is desirable to effect a composition or an extension of time to pay his debts. The petition or answer of the farmer shall be accompanied by his schedules. The petition and answer shall be filed with the court, but shall, on request of the farmer or creditor, be received by the conciliation commissioner for the county in which the farmer resides and promptly transmitted by him to the clerk of the court for filing. If any such petition is filed, an order of adjudication shall not be entered except as provided hereinafter in this section."
"Sec. 73. Additional Jurisdictions. -- In addition to the jurisdiction exercised in voluntary and involuntary proceedings to adjudge persons bankrupt, courts of bankruptcy shall exercise original jurisdiction in proceedings for the relief of debtors, as provided in sections 74, 75, and 77 of this Act."
The Amendments of Bankruptcy Rules, Order of June 1, 1936, 298 U.S. 695, are based upon petitions for composition, rather than bankruptcy. See particularly General Order 50, p. 701.
Adair v. Bank of America Assn., 303 U. S. 350; Continental Bank v. Chicago, R.I. & P. Ry. Co., 294 U. S. 648, 294 U. S. 668.
In re Reiman, 20 Fed.Cas. p. 490, No. 11,673.
Continental Illinois Nat. Bank & Trust Co. v. Chicago, R.I. & P. Ry. Co supra, 294 U. S. 672; United States v. Bekins, ante, pp. 304 U. S. 27, 304 U. S. 47; Hanover National Bank v. Moyses, 186 U. S. 181, 186 U. S. 187.
Williams v. U.S. Fidelity & G. Co., 236 U. S. 549, 236 U. S. 554-555; Louisville Bank v. Radford, 295 U. S. 555, 295 U. S. 582.
Adair v. Bank of America Assn., supra, pp. 303 U. S. 354-355, notes 2 and 3.
Wright v. Vinton Branch, 300 U. S. 440, 300 U. S. 456.
Compare Louisville Bank v. Radford, 295 U. S. 555, 295 U. S. 601.
Cf. Adair v. Bank of America Assn., 303 U. S. 350.
See Wright v. Vinton Branch, 300 U. S. 440, 300 U. S. 460 et seq.
Home Bldg. & Loan Assn. v. Blaisdell, supra, at 290 U. S. 435.
Wright v. Vinton Branch, supra.
See also Adair v. Bank of America Assn., supra, restricting the enforcement of a mortgage upon the gross proceeds of a crop.
Louisville Bank v. Radford, 295 U. S. 555.

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