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AMEND BANKRUPTCY ACT (AGRICULTURAL COMPOSITIONS)

that such sales can be authorized, and by the referee as well as by the judge (Collier on Bankruptcy, 13th ed. vol. 2, p. 1758.)

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The jurisdiction of a bankruptcy court to order the sale of property, free of encumbrances, has its origin in the power to conserve the property of the bankrupt and the value of an equity of redemption must always be a matter of more or less, as more or less is obtained for the property. (Matter of Theiberg, C. C., N. J., 47 Am. B. R. 257, 280 Fed. 408.)

A clause in a mortgage giving the right to bid on bonds does not in any way limit the power of the court to order a sale free and clear from the mortgage lien, however much it may influence its discretion. (Matter of Franklin Brewing Co., C. C. A., 2d Cir., 41 Am. B. R. 51, 249 Feb. 333.)

Neither is it unconstitutional to sell the property, and transfer the lien to the funds. That, again, has been done repeatedly by courts of bankruptcy.

To transfer the lien from the property to the proceeds of the sale is the exercise of a lesser power; and legislation conferring it is obviously constitutional. Realization upon the lien created by the State law must yield to the requirements of bankruptcy administration. (Van Huffel v. Harkelrode, 284 U. S. 223, 78 A L. R. 453; see also, First National Bank v. Sheed, 121 U. S. 74, 87; and Mellen v Moline Malleable Iron Works, 131 U. S. 352, 367.)

In U. S. National Bank of Omaha v. Pamp, decided by the Circuit Court of Appeals, Eighth Circuit, the following language was used:

The fundamental and radically progressive nature of these extensions becomes apparent upon their mere statement; but all have been judicially approved or accepted as falling within the power conferred by the bankruptcy clause of the Constitution. Taken altogether, they demonstrate in a very striking way the capacity of the bankruptcy clause to meet new conditions as they have been disclosed as a result of the tremendous growth of business and development of human activities from 1800 to the present day.

All that the mortgagee or lienholder ever was, or is, entitled to.. this country is the value of the property, as judicially determined, and there are many methods by which this may be determined. Subsection (s) employs them all, and leaves it in the discretion of the

court.

In re Chicago, Rock Island & Pacific Ry. Co. (7 C. C. A.), 72 Fed. (2d) 443, the court said:

Under the Federal Constitution, Congress "is authorized to enact such bankruptcy legislation as it may deem wise and appropriate. The constitutional grant of authority is not conditional nor limited", save as to uniformity.

Although at law the legal estate in many jurisdictions becomes vested in the mortgagee, conditionally before default and absolutely thereafter, in equity the mortgage is a mere security for the debt, a bare chattel interest, and, until a decree of foreclosure, the mortgagor remains the substantial and beneficial owner of the fec. This conception, of slow and gradual growth in courts of equity in England, is now accepted without dissent. (Conrad v. Atlantic Ins. Co., 1 Pet. 386, 7 U. S. (L. ed.) 189; 19 R. C. L. 310.)

And it does not furnish ground of objection that secured debts are affected, or that property which has been mortgaged by the bankrupt is to be administere by the bankruptcy court. Under the bankruptcy law as it existed prior to the recent amendments the court in ordering the sale of the bankrupt's property free of liens administers his encumbered property, as well as that which is unencum bered. (See Van Huffel v. Harkelrode, 284 U. S. 225, 227; Federal Land Bank of Baltimore v. Kurtz, C. C. A. 4th, 70 Fed. (2d) 46; Allebach v. Thomas, C. C. A. 4th, 16 Fed. (2d) 553; Bradford v. Fahey et al., C. C. 4th Circuit, opinion by Judge Parker.)

The time allowed in which to close up the bankrupt's estate in the amended subsection (s) is not unreasonable, and compares very favor ably with the time required in bankruptcy and receivership cases

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generally. The average of all cases heretofore has been approximately 2 years, and some cases have run as long as 12 years.

While the lienholder is delayed in getting his money, the delay is probably not for so long a time, or the loss so great, as would result to him if the act were not While passed and wholesale foreclosures of real-estate mortgages should result. generally regarded as a measure for the relief of farmer debtors, it is clear that the act is at the same time one in the interest of their creditors also; for creditors of farmers would have nothing to gain, even with respect to the collection of their debts, from the financial debacle which would result from the wholesale foreclosure of farm mortgages, in which their collateral would be rendered practically worthless (Bradford v. Fahey et al., C. C. A., 4th, No. 3797).

We know that in equity receiverships in the Federal courts more than 5 years often elapse before a final sale, during which time the creditors are restrained from enforcing liens (In re Cope, S Fed. Sup. 778).

Nor does this act establish a new principle by permitting the bankrupt to remain in possession of his own property, and pay the value as judicially determined for it. That has been determined by the Supreme Court in a number of cases. See the following cases: Sparhawk v. Yerkes (142 U. S. 1, 14); IN RE Swofford Bros. Dry Goods Co. (180 Fed. 549); Burlingham v. Crouse (228 U. S. 459); IN RE Reiman (7 Ben. 455, 11 N. B. R. 21, 20 Fed. Cas. 11673, and 12 Blatch. 562, 13 N. B. R. 128, 20 Fed. Cas. 11675.)

It must always be remembered that when Congress acts under the constitutional grant of power, its acts become the supreme law of the land, and any State law or State proceeding in State courts are superseded. There is no concurrent jurisdiction.

In Leidigh Carriage Co. v. Stengal, 95 Fed. 637, this language is used: But, as between district courts sitting in bankruptcy, and State courts for the administration of insolvent estates, there is no concurrent jurisdiction. The Constitution of the United States, by giving to Congress the power to pass uniform bankruptcy laws, gives to the courts in which Congress shall vest this power paramount jurisdiction in bankruptcy proceedings. (See also, Sturges v. Crowninshield, 4 Wheat. 122.)

It is not necessary for this committee to point out the necessity for this legislation. There are few Members in this Congress that have not already received numerous letters, many of them from conciliation commissioners and referees, pointing out that before the Supreme Court held subsection (s) of section 75 unconstitutional, they were able to settle a great number of cases out of court, because of the amendment of 1934, but that since the decision wholesale foreclosures have been started. The fact that there is now a higher price for agricultural products has made the property more attractive, and many mortgagees have taken advantage of this fact, and are now foreclosing whereas before the increase in price, they were quite willing to permit the farmer to continue, and do the best he could.

Many State moratoriums, and there were 26, are about to expire, and when they expire, there undoubtedly will be an avalanche of foreclosures; whereas, if this bill is passed, these foreclosures will be held in abeyance. Many of the distressed farmers will be able to get adjustments outside of court, because of the moral effect of the act, and in the rest of the cases, there will be orderly liquidation, with a view of the rehabilitation of the farm debtor, as well as full protection to the creditors. This the public conscience, as well as public interest and welfare, demands.

AMEND BANKRUPTCY ACT (AGRICULTURAL COMPOSITIONS) 9

CHANGES IN EXISTING LAW

In compliance with paragraph 2 of rule XIII of the Rules of the House of Representatives of Congress, new matter proposed to be added by H. R. 8728, amending section 75 of the Bankruptcy Act, is printed below in italics, matter in existing law is shown in roman, and matter to be omitted is enclosed in black bracket.

That section 75 of said Act, as amended, be further amended by amending the second sentence of subsection (b), so as to read as follows: "The conciliation commissioner shall receive as compensation for his services, [including all expenses,] a fee of $25 for each case [docketed and] submitted to him, and when docketed, to be paid out of the Treasury."

SEC. 2. That section 75 of said Act, as amended, be further amended by amending subsection (g) to read as follows:

"(g) An application for the confirmation of a composition or extension proposal may be filed in the court of bankruptcy after, but not before, [1] it has been accepted in writing, by a majority in number of all creditors whose claims have been allowed, including secured creditors whose claims are affected. which number shall represent a majority in amount of such claims." [, and (2) the money or security necessary to pay all debts which have priority unless waived, and in case of a composition, the consideration to be paid by the farmer to his creditors has been deposited in such place as shall be designated by and subject to the order of the court.]

SEC. 3. That section 75 of said Act, as amended, be further amended by amending subsection (k) to read as follows:

"(k) Upon its confirmation, a composition or extension proposal shall be binding upon the farmer and his secured and unsecured creditors affected thereby: Provided, however, That such [composition or extension] extension and/or composition shall not reduce the amount of [nor] or impair the lien of any secured creditor [, but shall affect only the time and method of its liquidation.] below the fair and reasonable market value of the properly securing any such lien at the time that the extension and/or composition is accepted, but nothing herein sh prevent the reduction of the future rate of interest on all debts of the debtor, whether secured or unsecured."

SEC. 4. That section 75 of said act, as amended, be further amended by amend ing subsection (n) to read as follows:

"(n) The filing of a petition [pleading] 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 [this section] 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 no 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 fariner 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], asking to be adjudged a bankrupt, was filed with the clerk of court or left with the conciliation commissioner for the purpose of for warding same to the clerk of court."

SEC. 5. That section 75 of said Act, as amended, be further amended by mending subsection (p) to read as follows:

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AMEND BANKRUPTCY ACT

AGRICULTURAL COMPOSITIONS)

"(p) The prohibitions of subsection (o) [shall not apply to proceedings for the collection of taxes, or interest or penalties with respect thereto, 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] shall apply to all judicial or official proceedings in any court or under the direction of any official, and shall apply to all creditors, public or private, and to all of the debtor's property, wherever located. All such property shall be under the sole jurisdiction and control of the court in bankruptcy, and subject to the payment of the debtor farmer's creditors, as provided for in section 75 of this Act."

SEC. 6. That section 75 of said Act, as amended, be further amended by adding a new subsection (s), after subsection (r), to read as follows:

“(s) Any farmer failing to obtain the acceptance of a majority in number and amount of all creditors whose claims are affected by a composition and/or extension proposal, or if he feels aggrieved by the composition and/or extension, may amend his petition or answer, asking to be adjudged a bankrupt. Such farmer may, at the same time, or at the time of the first hearing, petition the court that all of his property, wherever located, whether pledged, encumbered, or unencumbered, be appraised, and that his unencumbered exemptions, and unencumbered interest or equity in his exemptions, as prescribed by State law, be set aside to him, and that he be allowed to retain possession, under the supervision and control of the court, of any part or pared or all of the reminder of his property, including his encumbered exemptions, under the terms and conditions set forth in this section. Upon such a request being mede, the referee, under the jurisdiction of the court, shall designate and appoint appraisers, as provided for in this Act. Such appraisers shall appraise all of the property of the debtor, wherever located, at its then fair and reasonable market value. The appraisals shall be made in all other respects with rights of objections, exceptions, and appeals. in accordance with this act: Provided, That in proceedings under this section, either party may file objections, exceptions, and take appeals within four months from the date that the referee approves the appraisal.

"(1) After the value of the debtor's property shall have been fixed by the appraisal herein provided, the referee shall issue an order setting aside to such debtor his unencumbered exemptions, and his unencumbered interest or equity in his exemptions, as prescribed by the State law, and shall further order that the possession, under the supervision and control of the court, of any part or parcel or all of the remainder of the debtor's property shall remain in the debtor, as herein provided for, subject to all existing morigages, liens, pledges, or encumbrances. All such eristing mortgages, liens, pledges, or encumbrances shall remain in full force and effect, and the property covered by such mortgages, liens, pledges, or encumbrances shall be subject to the payment of the claims of the secured creditors, as their interests may appear.

"(2) When the conditions set forth in this section have been complied with, the court shall stay all judicial or official proceedings in any court, or under the direction of any official, against the deitor or any of his property, for a period of three years. During such three years the debtor shall be permitted to retain possession of all or any part of his property, in the custody and under the supervision and control of the court, provided he pays a reasonable rental semiannually for that part of the property of which he retains possession. The first payment of such rental shall be made within six months of the date of the order staying proceedings, the amount and kind of such rental to be the usi al customary rental in the community where the property is located, based upon the rental value, net income, and corning capacity of the property, Such rental shall be paid into court, to be used, first, for payment of tazes and upkeep of the property, and the remainder to be distributed among the secured and unsecured creditors, as their interests may appear When the annual net rental exceeds five per centum of the appraised value of the property, the excess shall be applied in reduction of the indebtedness as established by the appraised value of the property, and paid to the secured and unsecured creditors, as their interests may appear. The court in his discretion, if it deems it necessary to protect the creditors from loss by the estate, and or to conserve the security, may order sold any uncrempt perishable property of the debtor, or any unerempt personal property not reasonably necessary for the farming operations of the debtors, such sale to be had at private or public sale, and may, in addition to the rental require payments on the princi al due and owing by the debtor to the secured and unsecured creditors, as their interests may appear, in accordance with the provisions of this Act, and may require such payments to be made quarterly, semiannually, or annually, not inconsistent with the protection of the rights of the creditors and the debtor's ability to pay, with a view to his financial rehabilitation.

"(3) At the end of three years, or prior thereto, the debtor may pay into court the amount of the appraisal of the property of which he retains possession, including the

AMEND BANKRUPTCY ACT (AGRICULTURAL COMPOSITIONS) 11

amount of encumbrances on his exemptions, up to the amount of the appraisal, less the amount paid on principal: Provided, That upon request of any secured or unsecured creditor, or upon request of the debtor, the court shall cause a reappraisal of the debtor's property, or in its discretion set a date for hearing, and after such hearing, fix the value of the property, in accordance with the evidence submitted, and the debtor shall then pay the value so arrived at into court, less payments made on the principal, for distribution to all secured and unsecured creditors, as their interests may appear, and thereupon the court shall, by an order, turn over full possession and title of said property, free and clear of encumbrances to the debtor: Provided, That upon request in writing by any secured or unsecured creditor or creditors, the court, in its discretion, if it deems it for the best interests of the secured creditors and the debtor, may order the property upon which such secured creditors have a lien to be sold at public auction; but no mortgagee or lienholder shall be permitted to bid on any property at such sale in excess of the appraised value, or the original principal, whichever is the higher. The debtor shall have ninety days to redeem any property sold at such sale by paying the amount for which any such property was sold, together with 5 per centum per annum interest, into court, and he may apply for his discharge, as provided for by this Act. If, however, the debtor at any time fails to comply with the provisions of this section, or with any orders of the court made pursuant to this section, or is unable to refinance himself within three years, the court may order the appointment of a trustee, and order the property sold or otherwise disposed of as provided for in this Act.

"(4) The conciliation commissioner, appointed under subsection (a) of section 75 of this Act, as amended, shall continue to act, and act as referee, when the farmer debtor amends his petition or answer, asking to be adjudged a bankrupt under the provisions of subsection (s) of section 75 of this Act, and continue so to act until the case has been finally disposed of. The conciliation commissioner, as such referee, shall receive such an additional fee for his services as may be allowed by the court, not to exceed $35 in any case, to be paid out of the bankrupt's estate. No additional fees or costs of administration or supervision of any kind shall be charged to the farmer debtor when or after he amends his petition or answer, asking to be adjudged a bankrupt, under subsection (s) of section 75 of this Act, but all such additional filing fees or costs of administration or supervision shall be charged against the bunkru, estate. Conciliation commissioners and referees appointed under section 75 of this Act shall be entitled to transmit in the mails, free of postage, under cover of a penalty envelop, all matters which relate exclusively to the business of the courts, including notices to creditors. If, at the time that the farmer debtor amends his petition or answer, asking to be adjudged a bankrupt, a receiver is in charge of any of his property, such receiver shall be divested of possession, and the property returned to the possession of such farmer, under the provisions of this Act. The provisions of this Act shall be held to apply also to partnerships, common, entirety, joint, community ownerships, or to farming corporations where at least 75 per centum of the stock is owned by actual farmers, and any such parties may join in one petition.

“(5) 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, shel be promptly reinstated, without any additional filing fees or charges. Any form debtor who has filed under the General Bankruptcy Act may take advantage of this section upon written request to the court.

"(6) This Act is hereby declared to be an emergency measure. If, in the judgment of the court, such emergency ceases to exist in its locality, then the court, in its discretion, may shorten the stay or proceedings herein provided for, and proceed liquidate the estate."

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