Court Opinion

ID: 3985904
Source: CourtListenerOpinion
Date Created: 2016-07-06 10:42:05.008226+00
Date Added: 2024-06-11T14:18:17.379545
License: Public Domain

As I see this case, the controlling question is: Does the constitutional power of Congress to establish "uniform Laws on the subject of Bankruptcies throughout the United States" (Sec. 8, Art. 1, Const. U.S.) go to the extent of permitting Congress to deal with the property of a deceased person who was never declared a bankrupt, although had he lived he might have taken advantage of Sec. 75, subsection (s) of the Bankruptcy Act? Title 11, Sec. 203, U.S.C.A. Neither the briefs nor the main opinion treats of this question, for the reason, perhaps, that is was considered unnecessary to do so in view of the conclusion that under our Probate Code the personal representative had no power, nor had the District Court power to permit him, to resort to the Bankruptcy Statute, and in view of the further fact that no court, Federal or State, at least not to my knowledge, has passed upon the question. And yet, I think that the outcome of this case depends mainly upon resolving that question. I state my reasons for thinking so; but because Federal Courts have not passed on the question and because this opinion can be merely suggestive, I shall rather pose and discuss the questions than express any positive opinion thereon.
Sec. 75, subsection (r), of the Bankruptcy Act provides:
"For the purposes of this section * * * the term `farmer' * * * includes the personal representative of a deceased farmer."
If the power of Congress does not go to the extent of dealing with deceased's insolvent estate, that ends the *Page 472 
matter. The results of the main opinion could then be upheld but on different grounds from those stated therein. If, on the other hand, the Congressional power does go to that extent it would seem that the fact that the Probate Code gives the representative no express or implied power to resort to the bankruptcy court, nor the court any power to permit him to do so, nor any power to permit decedent's property to be administered by the bankruptcy courts, can have no bearing in the matter. The Act of Congress would be paramount and would be just as controlling as to an insolvent decedent's farm as it would be to a living insolvent's farm. If the power exists, it would appear that it would be paramount even in the face of a state statute which expressly forbade any other tribunal or court taking cognizance of property of a decedent to which the jurisdiction of the Probate Court had attached. And it certainly would control in the case where there was no such restriction or prohibition in the Probate Court.
The situation it not one where the personal representative is acting as a statutory agent for the bringing of an action for negligence for the benefit of a class such as under Sec. 104-3-11, R.S.U. 1933, or under the Federal Employers' Liability Act, U.S.C.A. Vol. 45, Chap. 2, Sec. 51. In such case the personal representative acts dehors probate administration and by virtue of his statue. But if the bankruptcy jurisdiction of Congress extends to subjecting a deceased's insolvent property to bankruptcy administration, it would seem that the probate court could not withhold permission of the personal representative to apply to the bankruptcy court. The only person who could apply, under subsection (r), is the personal representative. The heirs of the deceased insolvent cannot apply. If, then, Congress has the power to extend bankruptcy to the property of a deceased insolvent debtor, it would seem that the probate court could not withhold permission; that the personal representative need not seek permission of the court to apply, for where the court has no discretion to deny and must grant permission *Page 473 
to apply, seeking permission would be a useless formality.
But, General Order 50(9) promulgated by the Supreme Court of the United States on January 16, 1939, provides that
"the personal representative of a deceased farmer who desires in his representative capacity to effect, under section 75, a composition or extension of the debts of the estate, shall attach to his petition, in lieu of schedules, the following papers, certified as correct by the court which appointed him * * * (a) a copy of the order of his appointment, (b) a copy of an order of the probate court authorizing him to file the petition." (Italics added.)
The Supreme Court must have recognized that there was a discretion in the probate court; otherwise it would not require authorization where it could not be in any case withheld.
It may be that the Sec. 75, subsection (r), should be construed to read that the term "farmer" includes the personal representative of a deceased "farmer" whenever the probate law of the state permits the personal representative to apply under this section (sec. 75). Such construction would at least remove any question of whether the bankruptcy powers of Congress would supersede the probate powers of the courts in the case of insolvent decedents where there was a conflict, but does not solve the question whether at all events the bankruptcy powers may constitutionally encompass the jurisdiction over the property of an insolvent decedent. If this be the construction adopted by the federal courts, the approach of the main decision would be correct. It would then definitely decide that subsection (r) was not applicable so far as this state is concerned because our laws did not permit the representation to apply.
Or General Order 50(9) may contemplate that Sec. 75 of the Bankruptcy Act meant only to give the personal representative the advantage of subsections (a) to (r), inclusive, relating to composition and extension of debts and *Page 474 
not of subsection (s) relating to moratorium. It speaks only of "a composition or extension of the debts." If this were the situation, subsection (r) could be meshed with the probate practice of the various states. The personal representative then would not have power to subject the property to the bankruptcy court and obtain its discharge from creditors but would only have power to use the machinery of bankruptcy to attempt to effect a conciliation and extension and then only if the probate statutes permitted such resort and the court permitted him to apply. And the holding of the main opinion would be final to the effect that our statutes gave no such power.
If Sec. 75 was intended, however, to extend to the deceased insolvent farmer's estate the full benefits of all the subsections of the Act, we have not only the question of whether Congress can constitutionally act at all in reference to such estate, but how, as a practical matter, the whole scheme can mesh with probate administration.
The farm, by death of its owner, has passed to the heirs subject to possession by the administrator and is liable for payment of the decedent's debts. Perhaps the heirs could object to their property being subjected to the operation of the Bankruptcy Act even though in this case it would seem wholly to their interest and for their benefit. We will assume that if the personal representative desires to take advantage of subsection (s) of Sec. 75 of the Federal Bankruptcy Act, it is with the tacit consent of the heirs. Does the power of the United States over bankruptcy extend to and encompass property of a decedent who was never declared a bankrupt, although he was actually so at the time of his death?
In Local Loan Vo. v. Hunt, 292 U.S. 234, 244,54 S. Ct. 695, 699, 78 L. Ed. 1230, 93 A.L.R. 195, the purposes of the Bankruptcy Act are well stated:
"* * * to `relieve the honest debtor from the weight of oppressive indebtedness, and permit him to start afresh free from the obligations to responsibilities consequent upon business misfortunes.'" *Page 475 
and to give him "a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt."
The U.S. Constitution gave Congress the power to pass a uniform law because a bankrupt's creditors were, in many cases, national and if he were to be free of debt he had to be free from creditors everywhere and not only from those who might choose to avail themselves of the procedure set up by the debtor's state. But where the bankrupt dies, he is no longer in position to pursue new opportunities in life. Death has relieved him of any harassment of creditors. His heirs cannot be sued for his debts. If he had taken bankruptcy he would have surrendered his unexempt property to his creditors as a condition for a complete discharge. But upon his death his property is surrendered to his personal representatives to the extent necessary to pay debts, etc., and if the estate is insolvent only his creditors are interested. In such case his property is applied to his debts, secured and unsecured, in probate just as if he were living and asked discharge from his debts. In one case, death relieves him from his creditors and his property is applied by probate to pay his debts. In bankruptcy, the Act discharges his debts whilst his unexempt property goes to his creditors. But, as Mr. Justice Brandeis observed in Louisville Joint Stock Land Bank v.Radford, 295 U.S. 555, 55 S. Ct. 854, 860, 79 L. Ed. 1593, 97 A.L.R. 1106, no bankruptcy act until the Chandler Act (which incorporated the provisions of the Frazier-Lemke Act as Sec. 75) had ever "undertaken to supply [the debtor with] capital with which to engage in business in the future" and certainly no bankruptcy act had ever attempted to save for the heirs of the bankrupt any of his property by modification in "the interest of either the [heirs] or other creditors [of] any substantive right of the holder of a mortgage valid under federal law" ("heirs" substituted for "debtor" in the quotation from the Radford case). *Page 476 
But taking the Radford case and the case of Wright v.Vinton Branch of Mountain Trust Bank, 300 U.S. 440,57 S. Ct. 556, 559, 81 L. Ed. 736, 112 A.L.R. 1455, together, there now seems to be no doubt that the bankruptcy power of Congress goes to the extent of offering "distressed farmers the aid of a means of rehabilitation." The original Frazier-Lemke Act was held unconstitutional not because it went to the extent of rehabilitation rather than mere discharge, but because it "effected a substantial impairment of the mortgagee's security" and therefore ran athwart of the Fifth Amendment to which the bankruptcy power is subject. But the question still remains: Does the bankruptcy power go to the extent of offering the personal representative of an insolvent deceased farmer the means of rehabilitation for the benefit of the heirs?
Certainly the original and amended Frazier-Lemke Act in relation to a living bankrupt farmer went further than had any previous bankruptcy act, not only in degree, but in nature of relief offered. Some states had given debtors extensive exemptions of unencumbered property from liability for seizure in satisfaction of debts; and the Bankruptcy Act of 1867 and 1898 had recognized these exemptions. "The first bankruptcy act provided only for compulsory proceedings against traders, bankers, brokers and underwriters." Later ones were extended to include practically all insolvent debtors and to provide for voluntary petitions and to permit compositions with creditors even without adjudication of bankruptcy, thus making the discharge of the debtor a matter of concern as well as the distribution of his property — the original purpose of the bankruptcy acts. As said in the Radford case:
"Bankruptcy acts had, either expressly, or by implication, as was held in Van Huffel v. Harkelrode, 284 U.S. 225, 227,52 S. Ct. 115, 116, 76 L. Ed. 256, 78 A.L.R. 453, authorized the court to direct, in the interest of other creditors, that all liens upon property forming a part of the bankrupt's estate be marshaled; that the property be sold free of encumbrances; and that the rights of all lienholders be transferred to the proceeds of the sale — a power which `had long been *Page 477 
exercised by federal courts sitting in equity when ordering sales by receivers or on foreclosure.'"
But all these changes, outside of permitting a debtor to apply for composition without declaration of bankruptcy, had been extensions of the class to which bankruptcy was available or of the means or devices for administering the bankrupt estates to the best advantage. Permitting a merchant not insolvent to apply for composition was the first change in the nature or fundamental purposes of bankruptcy. The next, even more vast in its implications, was the idea of rehabilitation of the bankrupt farmer brought forward in the Frazier-Lemke Act. This Act intruded into the fundamental purposes of bankruptcy the idea of preserving the homestead as a means of keeping the family together in a locale and providing it with the means of subsistence. This was, no doubt, the idea in offering the same means to the personal representative, although in many cases the deceased insolvent farmer might have been along in years and have had no family about him. In such cases the power could be used not for rehabilitation but for saving to the heirs part of the estate which might otherwise have gone to the creditors.
This development of the application of Congressional powers over bankruptcy from one of a compulsory distribution of the property of a certain class of debtors among different classes of creditors, through the state of enlarging the class of debtors and making resort to the Act voluntary, then placing the emphasis on discharge of the debtor instead of distribution of property to creditors by establishing mechanism for compositions, to one finally of looking to the rehabilitation of the debtor, all still pertained to the debtor and creditor relationship. None of these changes essayed an attempt to provide for the interests of the debtor's family after his demise by continuing the process of rehabilitation for the benefit of his family and/or his heirs. The march of legislation in using its reserve powers of bankruptcy coincides largely with the social needs *Page 478 
dictated by the times. And it is suspected that this lies at the bottom of the broad views which the Supreme Court took as to this new use of bankruptcy powers and, perhaps, justifiably so. Social needs must play their part in constitutional interpretation even at the sacrifice of logic and loyalty to concept. Where thousands of farmers were being ejected from their farms to become mere tenants, or, worse still, to drift into the cities or around the country with no longer any land tie, giving rise to family disruption and a great increase in the proletariat, it was better to forsake logic and concept, even though with reluctance, in order legally and judicially to cope with the situation. But, as before stated, in all this change the concept of relief to a debtor either in permitting him to start over again free of debt, and then to the point of assisting him in rehabilitation by aids in preserving to him his property was adhered to. Extending that help to those who never were debtors, and who in the sense never could be harassed, constituted another great departure. From the standpoint of human and national welfare it may be as important, or even more so, to offer aids to preserve the home when the breadwinning head of it is taken away by death as when he is alive and harassed by creditors. But where there is no family to continue together but only heirs who are sui juris and perhaps fully able to carry on without requiring the creditors to contribute to their capital, this social reason disappears.
It may be that the U.S. Supreme Court desired to recognize a discretion in the state courts as regards the situation of the deceased farmer's family in this regard by requiring, by General Order 50(9), the administrator first to obtain its authority as a condition of applying to the bankruptcy courts. But quere: Could the making of that order be pushed to the point of implying a recognition by Supreme Court that the power of Congress extended to providing means for deceased farmer's family to carry on by holding off the lienholder? That question should be squarely *Page 479 
presented to and decided by the Supreme Court before we can definitely say whether Sec. 75, subsection (r), of the Bankruptcy Act is constitutional.
I confess I have grave doubts as to the constitutionality of subsection (r), but I do not feel that it is encumbent upon me here to resolve those doubts. If the subsection is constitutional it would, if taken literally, confer on the personal representative a power which is not dependent on the action of our courts and by his application to the bankruptcy courts it would place the property under the jurisdiction of the federal courts. If this power in bankruptcy matters extends to rehabilitation of the deceased farmer's estate it may extend to rehabilitation of that of the workingman and small merchant and to their families, and the net results may be to transfer the administration of many pieces of property from the probate to the federal courts, which would delay the closing of small estates in probate for long periods of time and thus increase the expense. But if such is the result of a power constitutionally exercised, we must abide the consequences.
At this point I return to the matter of the bases for the use of the probate court's discretion in granting the authorization implied under General Order 50(9), which it must be assumed the Supreme Court of the United States recognized as residing in the probate court. Certainly if the probate court had discretion to refuse or grant authorization to permit the personal representative to apply to the federal court under Sec. 75, Subsection (s), of the Bankruptcy Act, that discretion must rest on certain bases. The two outstanding bases are (1) the presence or absence of a reasonable probability of a fair settlement with the creditors with a fair prospect of salvaging the farm: (2) the presence or absence of dependents which the farm helped to support. In John Hancock Mutual Life Insurance Co. v.Bartels, 308 U.S. 180, 60 S. Ct. 221, 223, 84 L. Ed. 176, the Supreme Court speaking through Mr. Chief Justice Hughes stated that: *Page 480 
"The subsections of Section 75 which regulate the procedure in relation to the effort of a farmer-debtor to obtain a composition or extension contain no provision for a dismissal because of the absence of a reasonable probability of the financial rehabilitation of the debtor."
And, in a footnote, that:
"What is said upon this point in Note 6 in Wright v. VintonBranch, 300 U.S. 440, 462, 57 S. Ct. 556, 561 81 L. Ed. 736, 112 A.L.R. 1455, was not essential to the opinion in that case and is not supported by the terms of the statute."
It seems to the writer that in the Wright case such element was held necessary by Mr. Justice Brandeis in order to sustain the constitutionality of the amended Frazier-Lemke Act. Otherwise, the debtor would have had an absolute right to retain the property for three years as against his mortgagee. Justice Brandeis evidently thought that this might be a denial of due process. All the justices concurred in the Wright case and all concurred in the Bartels case — Mr. Justice Brandeis having in the meantime resigned from the court. But perhaps that is the way the law grows. A difficulty is surmounted by construing with limitations. The next case abolishes the limitations on the construction, hence the difficulty and the limitation disappear. Be that as it may, the element of reasonable probability of salvage, although not to be read into Sec. 75 where a debtor is before the court, may be one of the bases on which rests the discretion of the probate court in its granting or refusing a petition by the personal representative of a debtor to subject the decedent's farm to the operation of the Bankruptcy Act. That, together with element of dependency of a family on the farm, would seem to form the chief bases upon which the discretion of the probate court could rest. But immediately this is said, a horde of questions thrust themselves into the mind. If there is other property besides the farm must it not also be transferred to the bankruptcy court? Would not all the assets be transferred to the bankruptcy courts? Would not the claims of all the decedent's *Page 481 
creditors be required to be transferred to that court? How else could the farm finally come back to probate freed of debts? And when it did so come back, how can it remain to support dependants if there are any adult heirs who could insist on distribution? Certainly the bankruptcy laws could not change the course of devolution. How then in any event could the farm be saved for dependents? All these and other questions strongly suggest that the administration and liquidation of an insolvent decedent's estate must remain with the probate court. There might be other elements which would also take the mortagee into account. He should not be altogether forgotten. How long had the creditor already been delayed in resorting to his security? What might be the probable effect of further delay on his rights? The "implications" of General Order 50(9) involve a recognition by the U.S. Supreme Court, of a discretion in the probate court.
If, therefore, the probate court has discretion, we must ask ourselves in this case whether the court abused its discretion in permitting the administrator to apply to the federal court to revive and to reinstate the debtor relief proceedings. I assume there is no difference between the power to initiate and to revive. Certainly if a personal representative has power to initiate he has power to revive and if it requires an order of the probate court to permit him to initiate it would also require an order to revive. The record shows no evidence upon which the court could exercise its discretion. A petition asking to revive was filed. It was noticed for February 10, 1940, arguments heard and an order granting the administrator authorization to apply to the federal court was granted. The court evidently thought the administrator had a right in law to apply and that the order permitting him to do so was a formality. But I cannot think the Supreme Court of the United States would require under General Order 50(9) an order by the probate court which in any event it was bound to make. I think the order of the probate court should be set aside. *Page 482 
But until the questions presented in this opinion are resolved by the Supreme Court of the U.S. it is doubtful whether it should be with instructions to dismiss the petition or with instructions to take evidence and to exercise its sound discretion on such evidence.
Before closing this opinion, I shall make several observations in regard to the main opinion with the results of which I feel in sympathy. Its implications may go further than intended.
I think probate practice encompasses prudent business administration and management of an estate within the limits of the law. Much that is not specifically granted by the statutes may be done because it is within the circle of granted powers and necessary or convenient to effectuate them. I do not think the powers given by the Probate Code should be too narrowly construed. There may be situations arise which might well call for the use of such facilities or instrumentalities in the orderly and business-like administration of estates and which might redound to the advantage of all parties interested therein, which should not be precluded even though such facilities were legal procedures available in other courts or agencies. And this is so even though such facilities might involve, to some extent, machinery designed to facilitate findings necessary or convenient to administration or to aid in the administration, liquidation, or settlement of the estate or claims against the same and even though it might involve a judgment which might be binding on the administrator. Hines v. Farkas, 5 Cir., 109 F.2d 289. The order permitting resort to the federal court was to obtain an "order reviving and reinstating the debtor relief proceedings or instituting new proceedings in said court." This apparently intended to permit resort to the federal court for all purposes under Sec. 75 of the Bankruptcy Act — that is, not only under section (a) to (r) which deal with composition, but with the "amendment" whereby the farmer asks to be adjudicated a bankrupt and which automatically permits the debtor to buy off *Page 483 
his creditors for the appraised value of the property. In the case of Bacon v. Federal Land Bank of Columbia, 5 Cir.,109 F.2d 285, it was held the "debtor" is not initially, under Sec. 75, a "bankrupt" but comes in as an applicant seeking the facilities of the Act for composition. It is only after he "amends" that he may be declared a "voluntary bankrupt". Whether the administrator without an order from the probate court, or by virtue of an order, could have taken advantage of sections (a) to (r), inclusive, of Sec. 75 of the Bankruptcy Act, is a question which the main opinion answers in the negative because it holds that the administrator cannot use the facilities of any part of Sec. 75 of the Bankruptcy Act. But perhaps the facilities of Sec. 75 may be split and the administrator may, without order of the probate court, use provisions (a) to (r), inclusive, in order to attempt a composition but not subsection (s) which by amendment brings into operation mechanism whereby the property is subjected to appraisal and the creditor compelled to take the appraised value or wait for three years. I have before stated that this feature may play its part in the consideration of the constitutionality of subsection (s). If the main opinion is correct in its conclusion that the court has no power to permit, nor the administrator himself power to resort to any legal facilities to effect a composition with creditors outside of that given by the Probate Code, the administrator could not, of course, take advantage of subsections (a) to (r). Until better advised I shall concur with the results of the main opinion.
(NOTE: January 16, 1941, the record in this case was removed on certiorari to the Supreme Court of the United States). *Page 484