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126 F.2d 676

Docket No. 7824.

In re McGrew

Third Circuit Court of Appeals

Argued Nov. 5, 1941.

Decided March 23, 1942.

Third Circuit Court of Appeals · decided 1942-03-23

Cited by 7 later decisions — most recently November 1949

2 federal appellate · 2 district ·

2 counsel of record

Applies 12 U.S.C. § 636 · 7 U.S.C. § 601

Relies on McNutt v. General Motors Acceptance Corp. · Louisville Joint Stock Land Bank v. Radford · KVOS, Inc. v. Associated Press

Good law ✅— No negative treatment on recordhow we know

Opinion by William Clark · Decided 1942-03-23

View the full empirical analysis of this case →

¶1*677Frank W. Stonecipher, of Pittsburgh, Pa., for appellant.

¶2Francis R. Harbison, of Pittsburgh, Pa. (James McGill, Boyer and John M. Shane, both of Pittsburgh, Pa., on the brief), for appellee.

¶3Before CLARK and JONES, Circuit Judges, and GANEY, District Judge.

¶4CLARK, Circuit Judge.

¶5The farmer in almost every nation has been excluded from the class against whom involuntary bankruptcy proceedings may be brought.1 This general cloak of protection,2 however, does not wholly explain the reasons for the special advantages afforded the farmer-debtor by the Frazier-Lemke Act.3 It is true that the economic condition of the farmer had grown steadily worse.4 However, one cannot overlook the historical fact that the American farmer has always been zealous in his own interests.5 At any rate state laws were enacted to extend the period of mortgage redemption,, to prohibit deficiency judg*678merits and to declare a complete moratorium on the payment of mortgage indebtedness.6 The Federal Government in 1933 passed three measures designed to improve • the farmers' financial situation.7 The Agricultural Adjustment Act8 sought to restore purchasing power by raising the level of farm prices; the Farming Mortgage Act9 was enacted to improve farm credit through the refinance of mortgage indebtedness; and Section 7510 of the Bankruptcy Act was intended to provide relief via composition and extension agreements to distressed farmer-debtors whose affairs did not warrant of require liquidation. These measures however proved inadequate for the task of rescuing the farmer from his financial plight. The cumbersome machinery of Section 75 was rarely resorted to because of two outstanding defects in its procedure.11 Since the mortgage debt of most farmers represented a majority of their indebtedness, the requirement that a composition or extension. be agreed to by a majority in number and amount of all creditors often tended to grant to a single mortgage a veto power pver composition and extension proposals. A mere composition or extension without any reduction in the amount of the lien was not a sufficiently effective remedy, particularly in view of the fact that in the absence of consent by at least a majority of the secured creditors, there was nothing to prevent foreclosure and dispossession of the farmer.12

¶6So finally a complete departure from the concept that bankruptcy legislation should preserve and distribute the debtors’ assets for the creditors’ -benefit was resorted- to. The Frazier-Lemke Act was designed solely to keep the farmer-debtor in possession of his farm perhaps for the general benefit of the state, but at any rate at the expense of his creditors.13 After an unsuccessful attempt,14 a constitutional act was passed as an amendment (subsection s) to Section 75 of the Bankruptcy Act.15 Section 75 was originally to run only until March 4, 1938, but was extended to petitions filed prior: to March 4, 194016 and re-extended to March 4, 1944.17

¶7The debtor now before us filed á petition under Subsection s of Section 75 and on *679July 21, 1937 was adjudicated a bankrupt.18 Some time after the close of the three year moratorium period (April 12, 1941), a mortgage-creditor presented a petition for the appointment of a trustee. Testimony on this petition was taken before a Conciliation Commissioner. The latter found that the debtor was not a farmer19 when he instituted the proceedings and accordingly recommended that the proceeding should be dismissed. To this report the debtor excepted and demanded a reáp-praisal of his property. Upon the confirmation of the Commissioner’s report20 by the District Judge, a dismissal of the proceedings followed.

¶8 If the detailed background of the passage of the Frazier-Lemke Act proves any one point, it demonstrates 'that the Act was intended for the relief of farmers only and only those who come within the statutory definition of farmer may participate in its benefits. The necessity that a debtor be a farmer, therefore, is jurisdictional.21 Like all matters going to the jurisdiction over the subject matter, it may be raised at any point in the proceedings and by either the parties themselves or the court, sua sponte.22 With but a dictum contra,23 the cases are unanimous in holding that even though the court approves a petition as validly filed, it may later and of its own motion dismiss when the debtor! is found not to be a farmer.24

¶9It is essential, however, that jurisdictional issues under Section 75, sub. *680s may not be disposed of until a hearing thereupon has been held after due notice to the debtor.25 To make the notice due it should have included within its terms the question of farmer vel non. This it did not do but rather postulated the question of whether a trustee should be appointed. This defect was .cured by the proceedings in the District Court. In those hearings the debtor expressly excepted26 to a finding of fact27 by the Conciliation Commissioner which was . worded as follows:

¶10“The Commissioner makes the following Finding of Fact

¶11“1. That the debtor was not a bona fide farmer when he instituted these proceedings, in that he did not derive his principal source of income from farming, nor was he primarily engaged in farming.” Appellant’s Appendix p. 31. The learned District Judge at the hearing before him made an independent finding saying: “In our opinion, McGrew was not a farmer, as defined by Section 75 of the Bankruptcy Act.” Appellant’s Appendix, p. 48.

¶12We must therefore affirm his dismissal of the proceedings. Since the court had no jurisdiction of the debtor, it may not order a reappraisal.

¶13The order of the District Court confirming the Conciliation Commissioner’s report is affirmed.

¶14JONES, Circuit Judge, concurs in the result.

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