Opinion · Supreme Court of the United States

Wright v. Vinton Branch of Mountain Trust Bank of Roanoke

300 U.S. 440

Type
Opinion
Court
Supreme Court of the United States
Jurisdiction
Federal
Date
1937-03-29
Topic
general

How later courts describe this case

  • holding that the second Frazer-Lemke Act, which was almost identical to the Act invalidated in Radford, was constitutional
  • holding bankruptcy statute that permits delay in enforcement of mortgage for three years or more while debtor attempts to obtain composition or extension does not violate due process
  • finding constitutional the second Frazier-Lemke Act, which was almost identical to the Act invalidated in Radford
  • "[I]t must be assumed that the mortgagor will not get the property for less than its actual value ...”
  • “In law as in life . . . the same words, placed in different contexts, sometimes mean different things.”
  • "as here applied [the first Frazier-Lemke Act] has taken from the Bank the following property rights ...: (3
  • “the amendment that Senator Hatch and I offer today is carefully crafted to hold corporate officer[s] responsible”
  • affirming constitutionality of new Frazier-Lemke Act

Citator

UpLaw has not yet analyzed Wright v. Vinton Branch of Mountain Trust Bank of Roanoke. The absence of a flag is not a finding that it is good law.

Cited by
346 opinions

Headnotes

  1. Bankruptcy Law — Jurisdiction A mortgagee's motion to dismiss a farmer-debtor's petition under § 75(s) of the Bankruptcy Act on constitutional grounds is not premature where the debtor has taken all affirmative action required of him under the section to initiate proceedings leading to a stay of foreclosure. 300 U.S. at 456
  2. Constitutional Law — Avoidance of Constitutional Questions When the validity of an Act of Congress is drawn in question, and even if a serious doubt of constitutionality is raised, a cardinal principle requires the Court first to ascertain whether a construction of the statute is fairly possible by which the constitutional question may be avoided. 300 U.S. at 461
  3. Bankruptcy Law — Farm Mortgagee's Substantive Rights Section 75(s) of the Bankruptcy Act, as amended by the new Frazier-Lemke Act and construed in light of the committee reports, adequately preserves a farm mortgagee's substantive rights to retain the lien until the secured indebtedness is paid, to realize upon the security by a judicial public sale, and to protect his interest in the property by bidding at such sale. 300 U.S. at 458
  4. Bankruptcy Law — Due Process — Fifth Amendment The original Frazier-Lemke Act was held invalid in Radford not because deprivation of any one enumerated right of the mortgagee would render the Act invalid, but because the effect of the statute in its entirety was to deprive the mortgagee of his property without due process of law; the Radford decision did not question the power of Congress to offer distressed farmers a means of rehabilitation under the bankruptcy clause. 300 U.S. at 457
  5. Bankruptcy Law — Farm Debtor's Stay of Foreclosure While the amended Act ordinarily affords the farmer-debtor a three-year stay of foreclosure, the stay is not absolute, and the court may terminate it earlier and order a sale. 300 U.S. at 460
  6. Bankruptcy Law — Court's Power to Curtail the Stay Construed in light of the committee reports and the explanations of the bill made in both Houses by its authors and accepted by Congress without dissent, the amended Act gives the court broad power to curtail the three-year stay for the protection of mortgagees: the property retained by the debtor remains at all times in the custody and under the supervision and control of the court; and the court may terminate the stay and order a sale if the debtor defaults in paying a reasonable rental, fails to comply with court orders requiring interim payments on principal or otherwise issued in the course of the court's supervision of his possession, if after a reasonable time it becomes evident that there is no reasonable hope the debtor can rehabilitate himself financially within the three-year period, or if the court finds the emergency that gave rise to the legislation has ceased to exist. 300 U.S. at 461
  7. Bankruptcy Law — Possession by Debtor Rather Than Receiver The amended Act is not unconstitutional as applied to a mortgagee because possession of the property during the stay of foreclosure is in the debtor, subject to obligations imposed by the Act and to the supervision and control of the court, rather than in a receiver or trustee. 300 U.S. at 465
  8. Bankruptcy Law — Rental Payments by Debtor in Possession The clause of § 75(s), par. 2, providing that the debtor in possession shall make the first rental payment within one year of the date of the stay order is construed, in view of the additional requirement of semi-annual payments, not as meaning that the debtor may not be required to pay rent before the close of the first year, but as forbidding the court to postpone the payment beyond one year; so construed, the clause is not unreasonable or arbitrary. 300 U.S. at 467
  9. Bankruptcy Law — Application of Rents Paid into Court The requirement of the amended Act that rents paid into court by the debtor in possession during the stay be applied first to taxes and upkeep of the property is consistent with the constitutional rights of the mortgagee. 300 U.S. at 468
  10. Bankruptcy Law — Standard for Testing Constitutionality The objection that the amended Act unconstitutionally restricts a lienor's remedy under state law by delays interposed to the enforcement of his rights is to be tested not by what might be permitted to a State under the Contract Clause, but by whether, as an exercise of the bankruptcy power for the rehabilitation of the farmer-mortgagor, the Act so far modifies the lienor's rights, remedial or substantive, as to deny the due process of law guaranteed by the Fifth Amendment. 300 U.S. at 468
WRIGHTv. VINTON BRANCH,300 U.S. 440(1937)
57 S.Ct. 556
WRIGHTv. VINTON BRANCH OF THE MOUNTAIN TRUST BANK OF ROANOKE ET AL.
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE FOURTH CIRCUIT.
No. 530.
Argued March 3, 4, 1937.
Decided March 29, 1937.
1. A motion to dismiss a petition under § 75(s), as amended, of the Bankruptcy Act upon the ground that, as applied to the owner of a farm loan secured by deed of trust, provisions of that subsection are unconstitutional,heldnot premature where the farmer debtor had taken all affirmative action required of him under the section to initiate proceedings leading to a stay of foreclosure. P. 456.Louisville Joint Stock Bankv.Radford,295 U.S. 555, did notPage 441question the power of Congress to offer to distressed farmers means of rehabilitation under the bankruptcy clause. 2. When the validity of an Act of Congress is drawn in question, and even if a serious doubt of constitutionality is raised, it is a cardinal principle that this Court will first ascertain whether a construction of the statute is fairly possible by which the question may be avoided. P. 461. 3. Section 75(s) of the Bankruptcy Act, as amended, (the new Frazier-Lemke Act) is construed with committee reports and is found adequately to preserve the following substantive rights of a farm mortgagee, which this Court held inLouisvilleJoint Stock Land Bankv.Radford,295 U.S. 555, were not protected before the amendment,viz., (a) The right to retain the lien until the indebtedness thereby secured is paid; (b) the right to realize upon the security by a judicial sale; (c) the right to protect the mortgagee's interest in the property by bidding at such sale whenever held. P. 458. 4. In theRadfordcase,supra, it was not held that deprivation of any one of the five rights of a mortgagee enumerated in the opinion (pp. 594, 595) would render the original Frazier-Lemke Act invalid, but that the effect of the statute in its entirety was to deprive the mortgagee of his property without due process of law. P. 457. 5. While the new Act affords the farmer debtor, ordinarily, a three year stay of foreclosure, the stay is not an absolute one; the court may terminate it earlier and order a sale. P. 460. 6. Construed in the light of committee reports, and the exposition of the bill made in both Houses by its authors and those in charge of the bill and accepted by the Congress without dissent, the amended Act gives the court broad power to curtail the stay of foreclosure, for the protection of mortgagees. The property of which the debtor retains possession is at all times in the custody and under the supervision and control of the court. If the debtor defaults at any time in his obligation to pay a reasonable rental for the part of the property of which he retains possession, or fails at any time to comply with orders of the court issued under its power to require interim payments on principal, or other orders issued in the course of the court's supervision and control of his possession, or if after a reasonable time it becomes evident to the court that there is no reasonable hope that the debtor can rehabilitate himself financially within the three year period, or ifPage 442within that period the court finds that the emergency that gave rise to the legislation has ceased to exist, — the court may terminate the stay and order a sale. P. 461. 7. The amended Act is not unconstitutional as applied to a mortgagee because possession of the property during the stay of foreclosure is in the debtor subject to the obligations imposed by the Act and under the supervision and control of the court, rather than in a receiver or trustee. P. 465. 8. The clause of the amended Act, § 75(s), par. 2, providing that the first payment of rental by the debtor in possession shall be within one year of the date of the stay order, is construed, in view of the additional requirement that the payments shall be semi-annual, not as meaning that the debtor may not be required by the court to pay any rent before the close of the first year, but as forbidding the court to postpone the payment beyond one year. So construed, the clause is not unreasonable or arbitrary. P. 467. 9. The requirement of the amended Act that the rents paid into court by the debtor in possession during stay of foreclosure shall be applied first on taxes and upkeep, is consistent with the constitutional rights of the mortgagee. P. 468. 10. The objection that the amended Act unconstitutionally restricts a lienor's remedy under the state law by delays interposed to the enforcement of his rights, is to be tested not by what might be permitted to a State under the contract clause of the Constitution, but by whether, as an exercise of the bankruptcy power, for the rehabilitation of the farmer mortgagor, the Act so far modifies the lienor's rights, remedial or substantive, as to deny the due process of law guaranteed by the Fifth Amendment. P. 468.85 F.2d 973, reversed.
CERTIORARI,299 U.S. 537, to review a judgment affirming a
judgment of the Bankruptcy Court,12 F. Supp. 297, which, on the
motion of a secured creditor, dismissed a petition filed by a
farmer under § 75, subsection (s), as amended, of the Bankruptcy
Act.
Messrs. S.S. Lambeth, Jr., Elmer McClain, andWilliamLemkefor petitioner.Page 443

The history and development of bankruptcy legislation in the United States have been exhaustively considered in a number of recent cases in this Court.Continental Illinois National BankTrust Co. v.Chicago, R.I. P. Ry. Co.,294 U.S. 648;Louisville Joint Stock Land Bankv.Radford,295 U.S. 555;Ashtonv.Cameron County,298 U.S. 513.

The new Frazier-Lemke Act is based on constitutional power to enact laws on the subject of bankruptcies, and is a reasonable exercise of that power. While the new Act has for its object the conservation and preservation of agriculture, as did the original Act, yet the methods and means employed are essentially different.

When this Court held the original Act unconstitutional inLouisville Joint Stock Land Bankv.Radford, supra, the present Act was introduced in both the Senate and the House. It was referred to the Judiciary Committees, which referred it to subcommittees for study and consideration with the purpose of complying with the Court's decision. The bill with the changes and amendments made by the subcommittees was then brought up before the Committees of the Whole of both the Senate and the House, and further amendments were made. Thereafter it was debated on the floors of the Senate and the House and passed without a dissenting vote in either House.

There is nothing novel in the new Act. It simply applies well established principles of bankruptcy law to agriculture. This may appear novel, but there is no provision of the Act which the bankruptcy courts have not already passed upon.

The courts have allowed going concerns to remain in possession, and to continue in business under trustees, and without trustees. They have permitted possession and the payment of indebtedness of such concerns on the instalment plan, with or without interest.In re Reiman, Fed. Cas. No. 11,673;Sparhawkv.Yerkes,142 U.S. 114;Page 444In re Swofford Co., 180 F. 549;Burlinghamv.Crouse,228 U.S. 459.

The courts have scaled down indebtedness to less than the value of the property, through composition, and they have given extension of time in which payments were to be made; and this, at times, against the wishes of the minority. What can be done to a minority can be done to a majority or to all of them, secured or unsecured creditors, and still be constitutional. Courts have sold encumbered property free of lien, and unincumbered property for cash or on time. Cf.In re Merkus, 289 F. 732;Traerv.Clews,115 U.S. 528;In re Waterloo Organ Co., 118 F. 904;Matter of Theiberg, 47 Am. B.R. 257;Matter of FranklinBrewing Co., 41 Am. B.R. 51;Matter of Tube Co., 25 Am. B.R. 651;Shinnv.Kemp Herbert,73 Wn. 254;Van Huffelv.Harkelrode,284 U.S. 225.

Section 75(s) has been held constitutional in many cases, State and Federal.

Acts of Congress held to be unconstitutional as originally enacted, have on several occasions been held constitutional when reenacted in altered form with the design of meeting the Court's objections. Cf.Hillv.Wallace,259 U.S. 44;Chicago Boardof Tradev.Olson,262 U.S. 1;Employers' Liability Cases,207 U.S. 463;Second Employers' Liability Cases,223 U.S. 1.

The duty of the Court is to square a new statute with the Constitution.United Statesv.Butler,297 U.S. 1. Former decisions on the validity of older statutes are notstaredecisis. Hertzv.Woodman,218 U.S. 205,212;DiSantov.Pennsylvania,273 U.S. 3, dis. op.

The new subsection (s) provides that any farmer-debtor, who fails under subsections a-r of § 75 to effect a composition with his creditors, may amend his petition or answer asking to be adjudged a bankrupt. All the debtor's property wherever located is then to be appraisedPage 445at its fair and reasonable market value. His unencumbered exemptions are set aside to him.

The debtor is allowed to retain possession of any part or all of the remainder of his property for a period of three years under supervision and control of the court. The debtor is required to pay a reasonable rental into court for the part of the property he retains. This rental is to be applied first to pay taxes and upkeep of the property, and the remainder distributed among creditors, secured and unsecured, and applied on their claims as their interests may appear. The court is given power to sell unexempt and perishable personal property if deemed necessary to protect the interests of creditors. The court may, if it sees fit, require payments on principal with a view to the debtor's ability to pay.

After three years have elapsed, or sooner if he desires, the debtor may pay into court the amount of the appraisal of the property of which he has retained possession, and the court will turn over to him full title to and possession of that property, free and clear of encumbrances. This procedure is subject to two provisos: 1. On the request of any creditor, secured or unsecured, or of the debtor, the court may order a reappraisal of the property and require the debtor to pay that price. 2. On the demand of any secured creditor the court must order the property on which the creditor has a lien sold at public auction. If the debtor fails to comply with the provisions of the Act, or any court order made thereunder, a trustee may be appointed and the property sold as in other bankruptcy cases.

It is an Act on the subject of bankruptcies. SeeIn re Klein(reported in note toNelsonv.Carland, 1 How. 265);In reReiman, Fed. Cas. No. 11,673;Hanover Nat. Bankv.Moyses,186 U.S. 181;Louisville Joint Stock Land Bankv.Radford,295 U.S. 555;In re Chicago,Page 446R.I. P. Ry. Co.,72 F.2d 443;Continental Illinois Bankv.Chicago, R.I. P. Ry. Co.,294 U.S. 648.

It does not take property without due process.

InLouisville Joint Stock Land Bankv.Radford,295 U.S. 555, holding the first § 75(s) void, the Court listed five rights of a secured creditor which were said to have been impaired. It did not hold the original Act unconstitutional because of the infringement of all of these rights. The Court held the Act unconstitutional because it was in violation of the due process clause of the Fifth Amendment. In fact, inContinental Illinois Bankv.Chicago, R.I. P. Ry. Co.,294 U.S. 648, this Court, in holding § 77 of the Bankruptcy Act constitutional, must have found that all of these so-called rights enumerated in the Radford case were qualified and subject to the Federal Constitution. We say this because § 77 of the Bankruptcy Act, providing for reorganization of railroad corporations, is much more drastic and arbitrary as far as the creditor's rights are concerned than subsection (s) of § 75.

It was held in theRadfordcase,supra, that the taking of these five so-called rights as a group had the effect of substantially impairing the mortgagee's security. It is clear from a reading of the new Act that rights numbered (1), (2) and (4) are fully and completely preserved.

Rights numbered (3) and (5), "The right to determine when such sale shall be held, subject only to the discretion of the court," and "The right to control meanwhile the property during the period of default, subject only to the discretion of the court, and to have the rents and profits collected by a receiver for the satisfaction of the debt," are not substantive, but remedial, rights and as such are subject to control under the bankruptcy power. They are only relative or remedial rights whichPage 447may be, and have been, suspended or taken away without violating the due process clause of the Fifth Amendment. Cf.ContinentalIllinois Bankv.Chicago, R.I. P. Ry. Co.,294 U.S. 648, holding the original § 77 of the Bankruptcy Act constitutional. Cf.Campbellv.Allegany Corp.,75 F.2d 947, cert. den.,296 U.S. 581, holding § 77B of the Bankruptcy Act constitutional.

In no case does § 75(s) treat creditors' rights more arbitrarily than either § 77 or § 77B. In most situations it does not go nearly so far.

The amendment is a reasonable adaptation of bankruptcy proceedings to farmers' conditions.

In bankruptcy proceedings, the court should be influenced by the consideration that a man can ordinarily do better with his own property and realize more therefrom than can be obtained in the course of judicial proceedings, with compulsory sales and expenses of administration.In re Arrington Co., 113 F. 498;Dallas Joint Stock Land Bankv.Davis,83 F.2d 322.

The amendment is reasonable and the necessity for it is shown by statistics.

Declaration of the existence of an emergency by a legislative body cannot be regarded as a subterfuge or as lacking in adequate basis.Home Bldg. Loan Assn. v.Blaisdell,290 U.S. 398;Blockv.Hirsh,256 U.S. 135.

Recent improvements in farm conditions show that suspension of sale of farm property will benefit both creditor and debtor.

While the value of farm lands has increased, the agricultural debt structure has remained practically the same, except as reduced by foreclosures. The increase in the value of farm lands has in fact stimulated foreclosures. There is little money available for farm loans. The truth is that the farmer who really needs help cannot get it. As a result, hundreds and thousands of farm foreclosuresPage 448and evictions are taking place in practically every part of this Nation.

The purpose of the Bankruptcy Act was two-fold: First, to provide for an equitable distribution of the bankrupt's estate among his creditors; second, to rehabilitate the bankrupt and to give him a fresh start in life free from the burden of his debts.

The Court has stressed the fact that the Bankruptcy Act is founded on sound public policy.Stellwagenv.Clum,254 U.S. 605;In re Klein, 1 How. 279;Continental Illinois Bankv.Chicago, R.I. P. Ry. Co.,294 U.S. 648;Canada Southern R.Co. v.Gebhard,109 U.S. 527,536.

It is within the power of the Court to transfer the creditor's lien to the proceeds of a sale of the property, and to allow the bankrupt to repurchase the property.Van Huffelv.Harkelrode,284 U.S. 225;Traerv.Clews,115 U.S. 528;Sparhawkv.Yerkes,142 U.S. 1.

Congress may, under the bankruptcy power, stay judicial proceedings for three years. Cf. §§ 77, 77B;Home Bldg. LoanAssn. v.Blaisdell,290 U.S. 398.

The experience with bankruptcy administration shows that, even in normal times and under normal conditions, distribution takes not much less than 3 years. In times of emergency and economic distress it takes longer, because the problem of liquidation is more difficult and slow, due to lack of buyers of bankrupt estates.

In the famous rent cases, tenants were allowed to remain in possession over the objection of landlords, provided reasonable rent was paid. Cf.Levy Leasing Co. v.Siegal,258 U.S. 242;Marcus Brown Holding Co. v.Feldman,256 U.S. 170;Blockv.Hirsh,256 U.S. 135.

The moratorium is a proper exercise of federal police power within the respective fields of sovereigntyPage 449enumerated in Art. I, § 8, of the Constitution. Congress may exercise full police power to the same extent that a state legislature may exercise police power within the fields of sovereignty not granted to the federal government. Cf.Hamiltonv.Kentucky Distilleries,251 U.S. 146,156;Championv.Ames,188 U.S. 321,357;McCrayv.United States,195 U.S. 27,59;Hipolite Egg Co. v.United States,220 U.S. 45,57,58;Hokev.United States,227 U.S. 308;Caminettiv.United States,242 U.S. 470,492;Seven Casesv.UnitedStates,239 U.S. 510,514,515;United Statesv.Doremus,249 U.S. 86,93,94.

The Fifth Amendment imposes in this respect no greater limitation upon the national power than does the Fourteenth Amendment upon state power.In re Kemmler,136 U.S. 436,438;Carrollv.Greenwich Insurance Co.,199 U.S. 401,410;Brooksv.United States,267 U.S. 432,436;Blockv.Hirsh,256 U.S. 135,155.

The sovereignty of the United States under Art. I, § 8, cl. 4, to "establish uniform laws on the subject of bankruptcies," is as untrammeled as any of the other sixteen cognate sovereignties granted in the same section.

The moratorium in subsection (s) under the power of Congress to legislate upon "the subject of bankruptcies" is a proper exercise of the federal police power. It is as valid as the power of a State to enact a moratorium during the existence of the same emergency under its police power.

The Act does not deny full faith and credit to state laws and judicial decrees.

The Act is a uniform law on the subject of bankruptcies.

Even if clause (6) of the Act were held unconstitutional, it can be severed from the rest of the Act.Page 450Mr. John Strickler, pro hac vice, by special leave of Court, andMr. T.X. Parsons, with whomMessrs. S.V. KempandJohnF. Reinhardtwere on the brief, for respondents.

It should be especially observed that under the Virginia law no proceedings in court are necessary to enforce a deed of trust. Upon notification by the holder of the debt that there has been a default, the trustee proceeds to sell the property, and pending sale may rent the property for the future protection of the creditor. The sale by the trustee is absolute and final, and the sale will not be enjoined in Virginia so long as the trustee acts within the powers given him by the trust instrument or by state law. It is, therefore, evident that the positions of the secured creditors in this case and in theRadfordcase are similar, with the exception that in this case under the Virginia law the rights of the creditors are more absolute in form and the exercise of those rights is not subject to the discretion of the court. SeeIn re Sherman,12 F. Supp. 297.

Under the operation of this Act some time will be occupied, perhaps several months, in attempting to secure the relief provided for in the sections preceding subsection (s), in regard to a composition or extension of the debtor's obligation with the consent of the creditors; then, when a petition is filed praying for the relief outlined in subsection (s), a further period of months will be consumed in having the property appraised and putting the debtor in the position he must occupy before the stay is granted. There is a four months' period, which would prolong the delay, wherein he is given time to object to the appraisement. Then, should the official and judicial procedure be stayed for a period of three years, no rent will be paid for one year, since the payment of rent is not a condition precedent to the operation of the Act. If we comparePage 451the position of the creditor under the Virginia law prior to the passage of this Act with his position thereafter, we find that not only is the application of the security to the payment of the debt deferred for three or more years, but the rents and profits are diverted from him for one year or more, and even then the rental is paid on taxes and upkeep of the property in derogation of his rights.

Practically, therefore, the creditor suffers a loss that may be, as in this case, very substantial. Cf.W.B. Worthen Co. v.Kavanaugh,295 U.S. 250.

In bankruptcy proceedings, generally, the law governing the validity of liens and property interests is the law of the locality in which the property is located. SeeCoxv.Wallace, 219 F. 126.

Congress has no power under the Bankruptcy clause to modify or impair the interests of mortgagees.Continental Illinois Bankv.Chicago, R.I. P. Ry.,294 U.S. 648.

The creditor, by the operation of this Act, has suffered a change of position to his detriment; and the estate of the debtor has been enlarged thereby. While the property is in the possession of the debtor under the supervision and control of the court, the net amounts received by the creditor through rental will be less than what he would receive with the trustee in possession; and in addition to that, sale is delayed.

Subsection (s) is so arbitrary and unreasonable in its operation on the vested rights of creditors as to violate the due process clause of the Fifth Amendment.

In this case, the debtor estimates the value of his assets at $2,882.50. The same schedule shows debts of $6,559.50, a large part of which is owed to these respondents. The record further shows that this debtor first petitioned for relief under the original Frazier-Lemke Act, since invalidated, by filing a petition March 29, 1935. HisPage 452petition asked that proceedings for foreclosure by appellees be stayed, which, as shown by the record, was done. The order of reference was entered March 30, 1935, but it was not until September 27, 1935, that a proposal was made to the creditors. The original Act having been invalidated and a new law passed in August, 1935, on October 8th this debtor petitioned for further relief, and on October 12, 1935, the matter was again referred to the conciliation commissioner. On January 8, 1936, the District Court ordered the case to be dismissed on the grounds that subsection (s) was unconstitutional, and thence it has come here on writ of certiorari.

Should the constitutionality of this legislation be upheld, a further order will have to be entered staying foreclosure proceedings for a period of three years, and this will be done in spite of the fact that the bankruptcy schedule shows no possible hope of solvency and contains no possible basis for a financial rehabilitation, which is claimed as the great objective of this Act. Furthermore, there will be more than another year before any rental will be paid, at which time additional taxes will be due, and a strong probability of diverting the income for making repairs as provided for in the Act. The operation of this legislation will postpone any payment to the secured creditor almost indefinitely, whereas under the law of Virginia the trustee has an immediate right of possession, and the beneficiary has an absolute and immediate right to demand sale of the property for payment of the debt.

If the rule laid down inHome Bldg. Loan Assn. v.Blaisdell,290 U.S. 398, and in theRadfordcase,295 U.S. 555, is correctly understood, it clearly asserts that, while the mortgagee is debarred from actual possession, he should have in rents the equivalent in value of possession during the extended period; also his interest should be carefully safeguarded.Page 453

The Bankruptcy Court may sell encumbered property free of liens, but as was observed in theRadfordcase,supra, such sales are held when it is to the interest of other creditors, and it is a settled principle that sale of encumbered property will not be ordered by the court if the amount of the liens exceeds the value of the property.

The contention based upon §§ 77 and 77B of the Bankruptcy Act andContinental Illinois Bankv.Chicago, R.I. P. Ry.,294 U.S. 648, was disposed of by this Court in theRadfordcase. Large numbers of creditors must be dealt with as a class. These sections operate for the best interest of the creditors, and upon consent of a two-thirds majority in number and amount. The rights of secured creditors, may thus be modified or somewhat restricted. But subsection (s) of § 75 works against the consent of the secured creditor and the restriction of his rights is against his will.

In a railroad reorganization the court is concerned with a public utility, the bonds of which have been purchased by the public with full knowledge of the nature of its business and the need for uninterrupted operation in the public interest.

The bankruptcy power of Congress is limited by the Fifth Amendment.Radfordcase,supra. Congress has no police power except as incidental to the exercise of some power delegated in the Constitution.Hamiltonv.Kentucky Distilleries,251 U.S. 246.

The Frazier-Lemke Act is not an exercise of police power nor incidental to the bankruptcy powers of Congress.Home Bldg.Loan Assn. v.Blaisdell,290 U.S. 398, distinguished.
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
The question for decision is whether § 75, subsection (s), of the Bankruptcy Act, as amended by the newPage 454Frazier-Lemke Act, August 28, 1935, c. 792,49 Stat. 943-945, is constitutional. In this case, the federal court for western Virginia (seeIn re Sherman,12 F. Supp. 297) and the Circuit Court of Appeals for the Fourth Circuit (85 F.2d 973) held it invalid. Like decisions have been rendered in other circuits.Lafayette Life Insurance Co. v.Lowmon,79 F.2d 887(Seventh Circuit);United States National Bank of Omahav.Pamp,83 F.2d 493(Eighth Circuit). In the Fifth Circuit the legislation was sustained.Dallas Joint Stock Land Bankv.Davis,83 F.2d 322. Because of this conflict and the importance of the question, we granted certiorari.1

Wright, a Virginia farmer, gave in 1929 a mortgage deed of trust of his farm to secure a debt now held by the Vinton Branch of the Mountain Trust Bank. In March, 1935, he filed a petition under § 75 of the Bankruptcy Act as amended June 28, 1934. c. 869,48 Stat. 1289.Page 455When the proceedings were begun, the debt secured by the deed of trust had matured and was in default, and the trustee, at the request of the beneficiary, had advertised the property for sale pursuant to the terms of the deed of trust and the provisions of the Virginia Code. The debtor's petition prayed, among other things, "that all proceedings against him by way of pending and advertised foreclosures of his farming lands, or by other methods contrary to the provisions" of the Act be stayed. The petition, "appearing to be in proper form and to have been filed in good faith," was referred to the Conciliation Commissioner as required by § 75. On July 27, 1935, the debtor made a proposal for composition; but it was not accepted by the mortgage creditor. On October 8, 1935, Wright filed an amended petition under subsection (s) of § 75 as amended by the new Frazier-Lemke Act; and asked to be adjudged a bankrupt and to have all the benefits of the provisions of said subsection (s) as so amended and approved August 28, 1935.

An order was entered adjudging Wright a bankrupt and again referring the matter to the Conciliation Commissioner. Thereafter, the Vinton Branch of the Mountain Trust Bank moved in the District Court that the proceedings before the Commissioner be terminated and "that this case be dismissed upon the ground that Subsection (s) of said Act is unconstitutional in that it deprives said creditor of its property without due process of law and that the debtor is not entitled to pursue the remedies and privileges granted therein." On January 8, 1936, that motion was granted; all proceedings on the bankrupt's petition were terminated; and his petition was dismissed. It is that order, affirmed by the Court of Appeals, which is here for review. Both of the lower courts held that, since the applicable rights of a mortgagee in Kentucky and of the beneficiary under a mortgage deed of trust inPage 456Virginia are substantially the same, our decision inLouisvilleJoint Stock Land Bankv.Radford,295 U.S. 555. required that subsection (s) be held unconstitutional.First. The mortgagee claims that the legislation is void on its face. It challenges the power of Congress to confer upon courts authority to grant to a mortgagor, under any circumstances, any of the relief provided for in subsection (s) of the new Frazier-Lemke Act. There has been no order granting a stay under Paragraph 2 of subsection (s). But the motion is not premature; for the fact that no stay order has been entered does not imply that an actual constitutional controversy is not presented. The petitioner asserts a right to pursue proceedings provided by a federal statute, and that right has been denied him on grounds of the alleged invalidity of the statute Before the motion to dismiss was made, the district court had entered its order adjudging petitioner a bankrupt, and referring the matter to the conciliation commissioner for further proceedings under § 75(s). The entry of the order of reference initiated proceedings designed to move, through the appointment of appraisers, the appraisal, and the referee's order recognizing the debtor's right to possession, to the grant of the stay by the court. Under the Act no further affirmative action by petitioner precedent to his obtaining the stay was necessary. The mortgagee was not obliged to delay his challenge to the validity of the stay and its essential incidents until these officials had complied with the mandatory provisions of the Act. But while we must decide whether the challenged subsection is constitutional, we refrain from deciding questions suggested which may arise later in the course of its administration.Second. The decision in theRadfordcase did not question the power of Congress to offer to distressed farmers the aid of a means of rehabilitation under the bankruptcy clause. The original Frazier-Lemke Act was there held invalid solely on the ground that the bankruptcy power ofPage 457Congress, like its other great powers, is subject to the Fifth Amendment; and that, as applied to mortgages given before its enactment, the statute violated that Amendment, since is effected a substantial impairment of the mortgagee's security. The opinion enumerates five important substantive rights in specific property which had been taken. It was not held that the deprivation of any one of these rights would have rendered the Act invalid, but that the effect of the statute in its entirety was to deprive the mortgagee of his property without due process of law. The rights enumerated were (pp. 594-595):

"1. The right to retain the lien until the indebtedness thereby secured is paid.

"2. The right to realize upon the security by a judicial public sale.

"3. The right to determine when such sale shall be held, subject only to the discretion of the court.

"4. The right to protect its interest in the property by bidding at such sale whenever held, and thus to assure having the mortgaged property devoted primarily to the satisfaction of the debt, either through receipt of the proceeds of a fair competitive sale or by taking the property itself.

"5. The right to control meanwhile the property during the period of default, subject only to the discretion of the court, and to have the rents and profits collected by a receiver for the satisfaction of the debt."

In drafting the new Frazier-Lemke Act, its framers sought to preserve to the mortgagee all of these rights so far as essential to the enjoyment of his security. The measure received careful consideration before the committees of the House and the Senate. Amendments were made there with a view to ensuring the constitutionality of the legislation recommended. The Congress concluded, after full discussion, that the bill, as enacted, was free from the objectionable features which had been held fatal to the original Act.Page 458Third. It is not denied that the new Act adequately preserves three of the five above enumerated rights of a mortgagee. "The right to retain the lien until the indebtedness thereby secured is paid" is specifically covered by the provisions in Paragraph 1, that the debtor's possession, "under the supervision and control of the court," shall be "subject to all existing mortgages, liens, pledges, or encumbrances," and that:

"All such existing 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

"The right to realize upon the security by a judicial public sale" is covered by the provision in Paragraph 3 that at the termination of the stay:Page 459

". . . upon request in writing by any secured creditor or creditors, the court shall order the property upon which such secured creditors have a lien to be sold at public auction."3

The new Act does not in terms provide for "The right to protect its [the mortgagee's] interest in the property by bidding at such sale whenever held . . ." But the committee reports and the explanations given in Congress make it plain that the mortgagee was intended to have this right.4We accept this view of the statute.Page 460Fourth. The claim that sub-section (s) is unconstitutional rests mainly upon the contention that the Act denies to a mortgagee the "right to determine when such sale shall be held, subject only to the discretion of the court." The assertion is that the new Act in effect gives to the mortgagor the absolute right to a three-year stay; and that a three-year moratorium cannot be justified. The three-year stay is specified in the following provisions:

"When the conditions set forth in this section [§ 75] 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 debtor or any of his property, for a period of three years." (Par. 2.)

"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 amount of encumbrances on his exemptions, up to the amount of the appraisal, less the amount paid on principal." (Par. 3.)5

Whether, in view of the emergency, an absolute stay of three years would have been justified under the bankruptcy power, we have no occasion to decide. There arePage 461other provisions in the statute affecting the mortgagor's right to possession. Their phraseology is lacking in clarity. But we are of opinion that, while the Act affords the debtor, ordinarily, a three-year period of rehabilitation, the stay provided for is not an absolute one; and that the court may terminate the stay and order a sale earlier. If we were in doubt as to the intention of Congress, we should still be led to that construction by a well settled rule: "When the validity of an act of the Congress is drawn in question, and even if a serious doubt of constitutionality is raised, it is a cardinal principle that this Court will first ascertain whether a construction of the statute is fairly possible by which the question may be avoided."Crowellv.Benson,285 U.S. 22,62.

The mortgagor's right to retain possession during the stay is specifically limited by paragraph 3, which provides:

"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."

Thus, for example, the debtor's tenure under the stay is subject to the requirement that he pay "a reasonable rental semiannually for that part of the property of which he retains possession." Under the last-quoted provision of Paragraph 3, if the debtor defaults in this obligation "at any time," the court may thereupon order the property sold. Likewise, the property while in the debtor's possession is kept, according to Paragraph 2, at all times "in the custody and under the supervision and control of the court"; and, also under Paragraph 2:

"The court, in its discretion, if it deems it necessary to protect the creditors from loss by the estate, and/or toPage 462conserve the security, . . . may, in addition to the rental, require payments on the principal due and owing by the debtor to the secured or 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."

Paragraph 3 authorizes the court to have the property sold if "at any time" the debtor should fail to comply with orders of the court issued under its power to require interim payments on principal, or otherwise in the course of its "supervision and control" of his possession. Paragraph 3 also provides that "if . . . the debtor at any time . . . is unable to refinance himself within three years," the court may close the proceedings by selling the property. This clause must be interpreted as meaning that the court may terminate the stay if after a reasonable time it becomes evident that there is no reasonable hope that the debtor can rehabilitate himself within the three-year period.6Finally, the intention of Congress to make thePage 463stay terminable by the court within the three years is shown also by Paragraph 6, which declares the act an emergency measure, and provides that:

"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 of proceedings herein provided for and proceed to liquidate the estate."7

Since the language of the Act is not free from doubt in the particulars mentioned, we are justified in seeking enlightenment from reports of Congressional committees and explanations given on the floor of the Senate and House by those in charge of the measure.8When the legislativePage 464history of the bill is thus surveyed, it becomes clear that to construe the Act otherwise than as giving the courts broad power to curtail the stay for the protection of the mortgagee would be inconsistent not only with provisions of the Act, but with the committee reports and with the exposition of the bill made in both Houses by its authors and those in charge of the bill and accepted by the Congress without dissent.9We construe it as giving the courts such power.Page 465Fifth. It is urged that subsection (s) is unconstitutional because there is taken from the mortgagee "the right to control meanwhile the property during the period of default, subject only to the discretion of the court.Page 466and to have the rents and profits collected by a receiver for the satisfaction of the debt."

(a) The argument is that possession by the mortgagor during the stay is necessarily less favorable to the mortgagee than possession by a receiver or trustee would be. This is not true. The mortgagor is in default, but it is not therefore to be assumed that he is a wrongdoer, or incompetent to conduct farming operations. The legislation is designed to aid victims of the general economic depression. The mortgagor is familiar with the property, and presumably vitally interested in preserving ownership thereof and ready to exert himself to the uttermost to that end. It is not unreasonable be to assume that, under these circumstances, the interests of all concerned will be better served by leaving him in possession than by installing a disinterested receiver or trustee. For the mortgagor holds possession charged with obligations imposed for the benefit of the mortgagee as fully as if the property were in the possession of a receiver or trustee, and there is probably a saving of expense. In order to protect the creditor's interests, the possession is at all times subject to the supervision and control of the court; and, if the debtor, "at any time," fails to comply with orders of thePage 467court issued in the exercise of its supervisory power to protect the mortgagee against waste or other abuse of his possession by the mortgagor, the court may order the property sold. The farmer's proceeding in bankruptcy for rehabilitation, resembles that of a corporation for reorganization. As to the latter it is expressly provided that the debtor may, to some extent, be left in possession, U.S. Code, Title 11, § 207(c); and it is common practice to appoint as receivers one of the officials of the corporation.

(b) It is complained that the mortgagor is not required to pay the first instalment of rent until the end of one year. The phraseology of the applicable provision is not clear. Paragraph 2 provides:

"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 one year of the date of the order staying proceedings, the amount and kind of such rental to be the usual customary rental in the community where the property is located, based upon the rental value, net income, and earning capacity of the property."

The clause providing that "the first payment of such rental shall be made within one year" is obviously capable of either of two constructions. One, that the mortgagor may not be required by the court to pay before the close of the year. The other, that the court may not postpone the payment beyond one year. In view of the requirement of semi-annual rental, the latter seems to us more reasonable. We intimate no opinion as to the validity of this provision under the first construction. As here construed, the clause cannot be deemed arbitrary or unreasonable.Page 468

(c) The disposition of the rental required to be made is said to involve denial of the mortgagee's rights. Paragraph 2 provides:

"Such rental shall be paid into court, to be used, first, for payment of taxes and upkeep of the property, and the remainder to be distributed among the secured and unsecured creditors, and applied on their claims, as their interests may appear."

It is suggested that payment of taxes and keeping the property in repair takes the income from the mortgagee, and that the mortgagor alone may be benefited thereby; that if the mortgagor exercises the option to purchase the property at its appraised value, he will secure the property free of tax liens which otherwise might have accrued against it. But it must be assumed that the mortgagor will not get the property for less than its actual value. The Act provides that upon the creditor's request the property must be reappraised, or sold at public auction; and the mortgagee may by bidding at such sale fully protect his interest. Non-payment of taxes may imperil the title. Payments for upkeep are essential to the preservation of the property. These payments prescribed by the Act are in accordance with the common practice in foreclosure proceedings where the property is in the hands of receivers.10Sixth. In support of the contention that the legislation is unconstitutional, it is pointed out that the delay in the enforcement of the mortgage under § 75 of the Bankruptcy Act as amended by sub-section (s) may exceed the term of three years; that months may be consumed inPage 469the effort to obtain a composition or extension of the debtor's obligations with the consent of the creditors; that when a petition is filed praying for the relief outlined in subsection (s) a further period of months may be consumed in having the property appraised and putting the debtor in the position which he must occupy before the stay is granted; that "four months from the date that the referee approves the appraisal" is given within which "either party may file objections, exceptions, and take appeals" from the appraisal; and that upon a sale of the property under Paragraph 3:

"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 cent per annum interest, into court. . ." It is pointed out, also, that the mortgage here in question is in the form of a deed of trust.11It is claimed that the rights to enforce payment by sale of the mortgage property, conferred by the law of Virginia upon the creditor under such a deed, are more peremptory than those under the law of Kentucky discussed in theRadfordcase.12And it is urged that the limitations here placed upon the enforcement of the mortgage are not merely a modification of the remedy recognized as permissible. CompareHome Building Loan Assn. v.Blaisdell,290 U.S. 398,434.Page 470

But the question here involved is not one of state action under the police power alleged to violate the contract clause. The power here exerted by Congress is the broad power "To establish . . . uniform Laws on the subject of Bankruptcies throughout the United States." The question which the objections raise is not whether the Act does more than modify remedial rights. It is whether the legislation modifies the secured creditor's rights, remedial or substantive, to such an extent as to deny the due process of law guaranteed by the Fifth Amendment. A court of bankruptcy may affect the interests of lien holders 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 marshalled; or that the property be sold free of encumbrances and the rights of all lien holders be transferred to the proceeds of the sale.Van Huffelv.Harkelrode,284 U.S. 225,227. 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 National BankTrust Co. v.Chicago, R.I. P. Ry. Co.,294 U.S. 648,680-681. It may enjoin like action by a mortgagee which would defeat the purpose of subsection (s) to effect rehabilitation of the farmer mortgagor. For the reasons stated, we are of opinion that the provisions of subsection (s) make no unreasonable modification of the mortgagee's rights; and hence are valid.Reversed.Page 471
  1. Page 454 See alsoSteversonv.Clark, 86 F.2d 330, andKnottsv.First Carolinas Joint Stock Land Bank, id., 551 (Fourth Circuit), applying the decision in the instant case;McWilliamsv.Blackard, id., 328, andPhoenix Joint Stock Land Bankv.Ledwidge, id., 335 (Eighth Circuit), applying the decision inUnited States National Bank of Omahav.Pamp, supra;andSchauerv.Producers Wool Mohair Co., id., 576 (Fifth Circuit), applying the decision inDallas Joint Stock Land Bankv.Davis, supra. The cases in the district courts are also conflicting. The legislation was sustained inIn re Slaughter,12 F. Supp. 206(N.D. Tex.);In re Reichert, 13id., 1 (W.D. Ky.);In re Cole, id., 283 (S.D. Ohio);In re Bennett. id., 353 (W.D. Mo.); andIn re Chilton, 16id. 14 (D. Colo.). CompareIn re Paul, 13id. 645 (S.D. Iowa);In re Slaughter,id., 893 (N.D. Tex.). It was held invalid inIn re Young,12 F. Supp. 30(S.D. Ill.);In re Lindsay, id., 625 (N.D. Iowa);In re Weise, id., 871 (W.D.N.Y.);In re Davis, 13id. 221 (E.D.N.Y.);In re Diller, id., 249 (S.D. Cal.);In reTschoepe, id., 371 (S.D. Tex.);In re Schoenleber, id., 375 (D. Neb.);In re Wogstad, 14id., 72 (D. Wyo.); andIn reMaynard, 15id. 809 (D. Idaho). CompareIn re Shonkwiler,17 F. Supp. 697,699(E.D. Ill.). ↩
  2. Page 458 Amendments to the bill subsequent to its introduction plainly demonstrate careful intention to leave the lien wholly unimpaired. As introduced, the measure provided for retention of the lien `up to the actual value of such property, as fixed by the appraisals provided for in this section,' S. 3002, § 6, p. 6 (Compare Act of June 28, 1934, c. 869, Subsec. (s), (2),48 Stat. 1290), and there was no provision for a public sale at the request of the secured creditor. As reported out of the Senate Committee on the Judiciary, and as subsequently enacted, the measure provided for retention of the lien unqualified by reference to the appraisal value of the property. See S. 3002, as reported, § 6, p. 6; Sen. Rep. No. 985, 74th Cong., 1st Sess., p. 3. As reported by the committee, the bill provided for a public sale in the discretion of the court, upon request of the secured creditor, and limited the lienholder's bid at such sale to `the appraised value or the original principal, whichever is the higher.' S. 3002,supra, § 6, p. 9; Sen. Rep. No. 985,supra, pp. 4, 6. Since the latter qualification was thought to raise some constitutional doubt, it was eliminated during the Senate's consideration of the measure. See statements of Senators Ashurst and Borah, of the Committee on the Judiciary, and of Senator Frazier, 79 Cong. Rec. 13413, 13633, 13634, 13641. The House Committee on the Judiciary reported the bill with this change. H.R. Rep. No. 1808, 74th Cong., 1st Sess., pp. 1, 4, 6. ↩
  3. Page 459 As introduced, S. 3002 contained the provision of the Act by which the mortgagor might purchase at the appraised value, subject to the mortgagee's right to require a re-appraisal; but it did not provide that the mortgagee might, in lieu of a re-appraisal, have a public sale. The bill as reported by the Senate Committee on the Judiciary inserted after the provision for appraisal a clause providing, "That upon request in writing by any secured creditor or creditors, the court, in its discretion, if it deems it for the best interests of the secured creditors and debtor, may order the property upon which such secured creditors have a lien, to be sold at public auction; . . ." S. 3002, as reported, § 6, p. 9; see Sen. Rep. No. 985, 74th Cong., 1st Sess., p. 4. "To remove a question as to the constitutionality of the bill," this provision was altered in the course of the bill's passage through the House to deprive the court of discretion in the matter and to give the secured creditor an unqualified right to a public sale as the alternative to a transfer of the property to the debtor at the re-appraised value. See remarks of Representative Summers, of the House Committee on the Judiciary, 79 Cong. Rec. 14332-33. ↩
  4. Page 459 As reported by the Senate Committee on the Judiciary, S. 3002, § 6, p. 9, recognized a right in the mortgagee to bid at the sale not in excess "of the appraised value or the original principal, whichever is the higher." See Sen. Rep. No. 985, 74th Cong., 1st Sess., pp. 4, 6. In striking out this qualification for the express purpose of avoiding a constitutional doubt, Senators responsible for the measure plainly showed that they had no intention of raising a further constitutional controversy by questioning the mortgagee's unqualified right to bid. See statements of Senators Ashurst, Borah, and Frazier, 79 Cong. Rec. 13413, 13633, 13634, 13641-42. II. R. Rep. No. 1808, 74th Cong., 1st Sess., pp. 1, 5-6, unequivocally declared that under the ActPage 460the secured creditors have the right to bid at the sale; and this was made clear on the floor of the House by Representative Summers, of the Committee on the Judiciary. See 79 Cong. Rec. 14333.

    The beneficiary under a mortgage deed of trust in Virginia is permitted to bid in the property at the sale. See,e.g.,Ashworthv.Tramwell,102 Va. 852,858,47 S.E. 1011;TitleInsurance Co. v.Industrial Bank,156 Va. 322,327,157 S.E. 710;Everettev.Woodward,162 Va. 419,174 S.E. 864. CompareEastonv.German-American Bank,127 U.S. 532,538. ↩
  5. Page 460 This clause is qualified by alternative provisos, one for payment at a reappraised value, the other for a public sale to be held upon the mortgagee's request at the time when the stay expires, whether by lapse of time or by the mortgagor's payment into court of the appraised or reappraised value. See Note 3,supra. ↩
  6. Page 462 This construction is in harmony with the requirement of good faith in the initiation of proceedings under § 75. Relief under § 75(s) may be obtained only by one who has made a bona fide attempt, and has failed, to effect a composition under § 75, (a)-(r). The offer of composition must be in good faith, [§ 75, (c), (i),47 Stat. 1471, 1472], and if the debtor is beyond all reasonable hope of financial rehabilitation, and the proceedings under § 75 cannot be expected to have any effect beyond postponing inevitable liquidation, the proceedings will be halted at the outset. The practical administration of § 75 in the lower courts already affords ample evidence of the substantial protection afforded the creditor by this requirement of good faith in the initiation of proceedings under subsections (a)-(r). SeeIn re Borgelt,70 F.2d 929;Dallas Joint Stock LandBankv.Davis, 83id. 322, 323;Stevensonv.Clark, 86id. 330;Page 463Knottsv.First Carolinas Joint Stock Land Bank, id. 551;Inre Reichert,13 F. Supp. 1,4,5;In re Paul, id., 645, 647;In re Buxton's Estate, 14id., 616;In re Vater, id., 631;In re Schaeffer, id., 807;In re Duvall, id., 799;In reByrd, 15id. 453;In re Wylie, 16id. 193, 194;In rePrice, id., 836, 837. CompareIn re Chilton,16 F. Supp. 14,17;In re Davis, id., 960. 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. CompareTennessee Publishing Co. v.American National Bank,299 U.S. 18,22. ↩
  7. Page 463 This provision is not inconsistent with the constitutional requirement that laws established by Congress on the subject of bankruptcies shall be uniform throughout the United States. Art. 1, § 8, cl. 4. The problem dealt with may present significant variations in different parts of the country. By Paragraph 6 the Bankruptcy Act adjusts its operation to these variations, as under other provisions it has adjusted its operation to the differing laws of the several States affecting dower, exemptions, and other property rights. CompareHanover National Bankv.Moyses,186 U.S. 181,189;Stellwagenv.Clum,245 U.S. 605,613. The authority granted by Paragraph 6 does not exceed limits of authority familiarly exercised by courts. SeeStandardOil Co. v.United States,221 U.S. 1,69; CompareChastletonCorp. v.Sinclair,264 U.S. 543. ↩
  8. Page 463 Where the meaning of legislation is doubtful or obscure, resort may be had in its interpretation to reports of Congressional committees which have considered the measure, (McLeanv.UnitedPage 464States,226 U.S. 374,380;Tagg Bros. Moorheadv.UnitedStates,280 U.S. 420,435); to exposition of the bill on the floor of Congress by those in charge of or sponsoring the legislation, (Duplex Printing Press Co. v.Deering,254 U.S. 443,475;Richbourg Motor Co. v.United States,281 U.S. 528,536); to comparison of successive drafts or amendments of the measure, (United Statesv.Pfitsch,256 U.S. 547,551);United States, v.Great Northern Ry. Co.,287 U.S. 144,155); and to the debates in general in order to show common agreement on purpose as distinguished from interpretation of particular phraseology, (Federal Trade Comm'nv.Raladam Co.,283 U.S. 643,650;Humphrey's Executorv.United States,295 U.S. 602,625). ↩
  9. Page 464 Emphasis upon the deliberate intention to meet the constitutional objections raised inLouisville Joint Stock Land Bankv.Radford,295 U.S. 555, dominated the consideration of the bill in all stages. Seee.g., Sen. Rep. No. 985, 74th Cong., 1st Sess., pp. 1, 3; H.R. Rep. No. 1808,id., pp. 1, 3; statements of Senator McCarran, 79 Cong. Rec. 11971; Senator Ashurst,ibid., Senator Board,id., 13411, 13632, 13642; Representative Lemke,id., 14331, 14332; and Representative Sumners,id., 14333. There was no dissent on constitutional grounds apart from the doubts which were disposed of as described in notes 2, 3, and 4,supra. Comparing the present measure with the former § 75(s), Sen. Rep. No. 985, 74th Cong., 1st Sess., p. 5, pointed out that "the amended subsection (s) shortens the time of the stay of proceedings from 5 to 3 years, and . . . gives the courts power to shorten that stay. It gives the court complete jurisdiction and custody of the property, with authority to fix the rental annually, and to sell perishable property and personal property that is not necessary for the debtor's farming operations. It will also be noticed that the court can require payments over and above the rental value. In other words, in the amended subsection (s),Page 465the property is virtually in the complete custody and control of the court, for all purposes of liquidation. . . ." Likewise, it was said in H.R. Rep. No. 1808, 74th Cong., 1st Sess., p. 5, that "The new subsection (s) shortens the time of the stay of proceedings from 5 to 3 years, and in addition gives the court power to shorten that period. . . . Under the new subsection (s) the property of the bankrupt is in the complete custody and control of the court, for all the purposes of liquidation." And at p. 6: "The Supreme Court intimated that in the original subsection, the district court did not have sufficient discretion. In this subsection, the district court is given complete control and discretion."

    Discussion of the bill in the Senate is reported in 79 Cong. Rec. 11970-71, 13348-49, 13411-13, 13632-45.

    In the Senate discussion there occurred the following (79 Cong. Rec. 13633):

    "Mr. BORAH. The court is given power in the bill to make sale of the property whenever the court deems it in the interest of all parties to do so.

    "Mr. HASTINGS. During the 3 years?

    "Mr. BORAH. Yes. In the case of perishable property, or property which is not bringing in any income, or anything of that kind, the court has power to make sale of it.

    . . . . .

    "Mr. FRAZIER. The bill gives the court authority to sell the property, if it deems it advisable, at any time. The court may sell any part of it or all of it at any time before or during or after the 3 years."

    Discussion of the bill in the House is reported in 79 Cong. Rec. 13831, 14331-34. Presenting the bill, as reported from committee, Representative Lloyd explained: "We have in no way reduced the security of the mortgagee. We have left his security intact, but we have made it possible for the bankruptcy court to retain jurisdiction for a period not to exceed 3 years." 79 Cong. Rec. 13831.

    There also occurred in the House the following (79 Cong. Rec. 14332):

    "Mr. FORD of California. Is it not designed to give to the farmer a breathing spell so that he may orient himself in such a way as toPage 466get out of his present difficulties without in the least jeopardizing the lien of his creditors?

    "Mr. LEMKE. Absolutely, and the district judge has complete control all the time of the farmer's property.

    . . . . .

    "Mr. ANDRESEN. All it does is to give a 3-year extension for the time of the redemption if the court so directs.

    "Mr. LEMKE. Under the supervision and control of the court."

    Despite some apparent similarity of language, the remarks quoted from the discussion in the Senate do not seem to have been addressed to the second proviso of paragraph 3 as it then stood, but to have been intended more generally, expressing the plan embodied in the last sentence of paragraph 3. Sec S. 3002, as reported from committee, § 6, p. 9. ↩
  10. Page 468 SeeShepherdv.Pepper,133 U.S. 626,652;Thompsonv.Phenix Insurance Co.,136 U.S. 287,293;Cakev.Mohun,164 U.S. 311,316; 1 Clark, Law and Practice of Receivers (2d ed. 1929) § 670; High, Law of Receivers (4th ed. 1910) § 643; 1 Wiltsie, Mortgage Foreclosure (4th ed. 1927) § 616. CompareAtlantic Trust Co. v.Chapman,208 U.S. 360,371. ↩
  11. Page 469 SeeFranklin Plant Farmv.Nash,118 Va. 98,111,86 S.E. 836,840;Dillardv.Serpell,138 Va. 694,697,123 S.E. 343; 3 Jones, Law of Mortgages (8th ed. rev. 1928) §§ 1742, 2276. ↩
  12. Page 469 See Code of Va., 1918 (Michie 1924) § 5167, as amended, Acts, 1926, c. 324, subsecs. (1)-(6), (13);In re Sherman,12 F. Supp. 297,298-299; CompareHoganv.Duke, 20 Gratt. 244, 256, 259;Muller's Administratorv.Stone,84 Va. 834,837,6 S.E. 223;Hudsonv.Barham,101 Va. 63,67,68,43 S.E. 189. See alsoAshworthv.Tramwell,102 Va. 852,858,47 S.E. 1011;Petersonv.Haynes,145 Va. 653,661,134 S.E. 675;Neff's Administratorv.Newman,150 Va. 203,210,142 S.E. 389. ↩