Court Opinion

ID: 9638517
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:46:02.677483+00
Date Added: 2024-06-11T18:10:07.389742
License: Public Domain

HOLMES, Circuit Judge
(dissenting).
I think the petition should be granted. The point of disagreement between us is not whether appellant is entitled to be adjudged a bankrupt. That was decided in Baxter v. Savings Bank of Utica, 5 Cir., 92 F.2d 404, which apparently is approved by three of the five judges of this circuit, and which is in accord with Massey v. Farmers & Merchants National Bank & Trust Company, 4 Cir., 94 F.2d 526, wherein certiorari was applied for by eminent counsel, and the application was afterward withdrawn prior to a ruling thereon by the Supreme Court. 303 U.S. 665, 58 S.Ct. 761, 82 L.Ed. 1122.
The real question at issue in this case is whether appellant is entitled to, petition the court to allow him to retain possession of his property for a period of three years, during which it shall stay all judicial proceedings in any court, or under the direction of any official, against the debtor or any of his property; and whether he is entitled to invoke the other jurisdictional provisions of Section 75 (s) of the Bankruptcy Act 11 U.S.C.A. § 203 (s).
No one denies that a farmer may become a voluntary bankrupt or that he may not be forced to become an involuntary one. Appellant has not petitioned for an adjudication as an ordinary bankrupt. There is nothing in the evidence to indicate that he desires any status in the bankruptcy court except that provided by subsection (s). If he does, no one may object, but he should not be entrapped, when he is seeking special relief under emergency legislation. This was the effect of our holding in the Baxter Case, in which no application for certiorari was made.
The question is, shall a debtor who prays for the beneficent provisions of subsection (s) be dealt with, under Section 22 of the Act, 11 U.S.C.A. § 45 as an ordinary voluntary bankrupt? The majority opinion says: “If there is no substantial equity, actual or potential, above the mortgage debt reasonably to be saved, a sale of the farm may be ordered, defeating of course rehabilitation, but the adjudication would stand and administration in bankruptcy continue”; but it does not say whether the administration should continue under subsection (s) or as in ordinary bankruptcy. The distinction is important, as will appear from the legal requirements of administration.
It is fundamental that adjudication fixes the status both of the bankrupt and of his property as of the date when the petition for adjudication was filed. An ordinary adjudication divests rights of the bankrupt and fixes rights of creditors, but under subsection (s), it leaves the substantive rights of bankrupt and creditors unimpaired, and provides a procedure for' the enforcement of both. The distinction be*818tween the latter procedure and that in ordinary bankruptcy is, from the debtor’s point of view, very marked. When the petition is not filed in good faith, fairness, as well as the statute, requires the proceedings to be dismissed, rather than to hold the petitioner as an ordinary bankrupt, and, denying a stay, to sell his property without any equity of redemption. Sheets v. Livy, 4 Cir., 99 F.2d 917.
Recurring to the real question at issue, the majority opinion says that Section 75, 11 U.S.C.A. § 203 nowhere mentions initial good faith as a prerequisite to invoking subsection (s). As to this, the note to Wright v. Vinton Branch, 300 U.S. 440, at page 462, 57 S.Ct. 556, at page 562, 81 L.Ed. 736, 112 A.L.R. 1455, seems to me to be ample authority. It elaborates upon the construction of the act in the body of the opinion. Apparently the note has the full sanction of the court, and, in addition to what I have previously quoted, it says: “It must be assumed that the situation of the present debtor was not beyond all reasonable hope of rehabilitation, else he could not have qualified to file his petition at the outset.” That is, he could not have filed his original petition, amended under subsection (s). ,
The holding which seems to me to be clearly untenable is that an amendment, not of the averments but of the prayer of the petition, supplies a constituent element essential to confer the additional jurisdiction for' relief of debtors which was the primary object of the original petition. Having made good faith essential to the filing of the original petition, it was unnecessary to repeat the requirement in the provision for the amendment. Referring to the petition, an amendment of. which is the subject of our disagreement, the statute provides as follows: “Upon the filing of such a petition or answer the judge shall enter an order either approving it as properly filed under this section, if satisfied that such petition or answer complies with this section and has been filed in good faith, or dismissing it.” 11 U.S.C.A. 202(a).
The above quoted sentence is from section 74(a), which applies to any person, except a corporation, seeking a composition or extension of his debts. Appellant is a person and not a corporation; therefore, it. includes him; but he belongs to a particular class of persons, which is further dealt with in section 75. He is a farmer, and when the latter seeks a composition or extension of his debts, additional jurisdiction is conferred on the bankruptcy court, but the general requirement that the petition must be filed in good faith is not relaxed. This is put beyond doubt by subsection (i) 11 U.S.C.A. § 203(i), which provides: “The court shall confirm the proposal if satisfied that (1) it includes an equitable and feasible -method of liquidation for secured creditors and of financial rehabilitation for the farmer; (2) it is for the best interests of all creditors; and (3) the offer and its acceptance are in good faith, and have not been made or procured except as herein provided, or by any means, promises, or acts herein forbidden. In applications for extensions the court shall require proof from each creditor filing a claim that such claim is free from usury as defined by the laws of the place where the debt is contracted.”
When these statutory provisions are rounded out by the constitutional construction of section 75(s) in Wright v. Vinton Branch, supra, and particularly by note 6 to the opinion of the court in that case, the court below was fully warranted in its dismissal of the proceeding, because there was no hope of rehabilitation and the amended petition was not filed in good faith.
Merely as a person, a farmer may file a petition under section 74, 11 U.S.C.A. § 202, seeking a composition or extension of his debts; he may amend it by alleging that he is a farmer and bring the proceeding within the additional jurisdiction granted under section 75; and, failing to reach an agreement with his creditors, he may amend the prayer of his petition and ask to be adjudged a bankrupt under section 75 (s), wherein still further powers are given to the bankruptcy court. The statute declares that these are grants of jurisdiction in addition to those theretofore possessed by the bankruptcy courts. 11 U.S.C.A. 201 (Section 73). The judicial power of the United States having the capacity to receive this jurisdiction from the Congress, the bankruptcy courts may exercise it if a person of the class designated seeks to invoke it by proper petition filed in good faith.
No good faith is required in ordinary bankruptcy; the debtor’s unexempt property is vested in a trustee for the benefit of his creditors; he is discharged from his provable debts; and nothing further is expected of him with respect to his former *819indebtedness; but sections 74 and 75 are intended to compose the debts and rehabilitate the debtor, either with or without an adjudication. In the latter instance, in the absence of good faith or the hope of rehabilitation, the proceeding is futile, and the law will not do an idle thing, especially since it will not help the debtor, and will hinder or delay the creditors. Sections 73, 74, and 75 are in one act, were passed at the same time (47 Stat. 1467, 1470), and should be construed together as the Congress was dealing with the whole subject at the same time, as indicated in 75 (r), 11 U.S.C.A. § 203(r), which includes section 74 in its definition of a farmer.
• The status of the debtor is not changed upon the amendment of his petition and his adjudication in bankruptcy under section 75 (s). This is shown by section 75 (n), which provides that upon the filing of the petition the debtor-farmer subjects himself and his property to the exclusive jurisdiction of the court, and that such jurisdiction 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. Therefore, the filing of the amended petition asking to be adjudged a bankrupt did not take away the power of the court to dismiss the petition (if not filed in good faith) expressly granted under section 74(a) and impliedly brought forward into section 75 by paragraph (i) of the latter section.
Notice to creditors is not necessary before dismissal of the original or amended petition. The statute does not require it, because the jurisdiction being exercised is primarily for the relief of debtors. Herein is another difference between the two procedures. The procedure in ordinary bankruptcy, where the rights of creditors are considered first, is incompatible in many respects with the beneficent procedure in recent legislation accorded distressed debtors. The basis for a contrary view may be found in the contention that, while the court might have dismissed the original petition herein without notice to creditors, it did not do so, but approved the same, and that the order of approval is res judicata. This contention readily gives way upon examination. First, the approval was upon the ex parte application of appellant, who did not file the petition or amendment thereto in good faith and may not complain of its dismissal. Second, no one was prejudiced by the dismissal, not even appellant, because, in the absence of good faith or hope of rehabilitation, he is not entitled to a stay, or to retention of possession of his property after adjudication, or to an equity of redemption after a sale., thereof, or to the other benefits of the liberal legislation intended for the relief of debtors in an economic emergency. Third, the bankruptcy court is always open; it has no terms fixed by law, and may review an order of this kind at any time before the proceeding is finally closed.
We have seen that every individual seeking a composition with creditors must file a petition in good faith or the court has power to dismiss it, and should do so under section 74 (a), without notice to creditors. What reason can be urged-for exempting a farmer from this requirement? Upon what principle of justice should a farmer who has no hope of rehabilitation be permitted to delay or hinder creditors with a sham proceeding for composition or extension of his debts? Good faith and hope of rehabilitation are not unusual requirements, and it is inconceivable that the Congress intended a discrimination in this respect when it was dealing with farmers and other individuals at the same time and in the same act: H.R.No. 14359, for the relief of debtors. 47 Stat. 1467, 11 U.S.C.A. § 201 et seq. Therefore, the only reasonable construction of the act is that a farmer is a person entitled to file a petition under either section 74 or 75, and a petition under either section may be dismissed for lack of good faith. This view is confirmed by subsection (i) of section 75, which requires confirmation of the proposal by the court if “the offer and its acceptance are in good faith, and have not been made or procured except as herein provided, or by any means, promises, or acts herein forbidden.” This statute itself is enough to show the intent of Congress, even if a farmer is not a person entitled to file a petition under section 74 (a) which may be dismissed by the court, for want of good faith, without notice to creditors.
Since the appellant has given no indication of a desire to become an ordinary bankrupt, and since the ruling of the majority is that neither good faith nor hope of rehabilitation is essential to an adjudication upon the amended petition, which entitles him to invoke the court’s emergency jurisdiction intended especially for the relief of debtors, I dissent, with deference, from the order overruling the petition for a rehearing.