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In re Wright

February 14, 1942


Appeal from the District Court of the United States for the Northern District of Indiana, Fort Wayne Division; Thomas W. Slick, Judge.

Author: Evans

Before EVANS, SPARKS, and KERNER, Circuit Judges.

EVANS, Circuit Judge.

This appeal, in a farmer-debtor proceeding, involves the construction of the Supreme Court opinion and mandate, announced in a former appeal in this same bankruptcy proceeding. Wright v. Union Central Insurance Co., 311 U.S. 273, 61 S. Ct. 196, 85 L. Ed. 184, modifying 7 Cir., 108 F.2d 361.

The instant appeal deals with bankrupt's asserted legal right to redeem his farm, within a reasonable time, at an earlier appraised price of $6,000, notwithstanding a later appraisal of $10,832 has been made.

The debtor contends that the $6,000 determination is res adjudicata,*fn* and he has an absolute right to redeem at that price. The creditor argues that under Sec. 75, sub. s(3), 11 U.S.C.A.ยง 203, sub. s(3), providing for a reappraisement on application of debtor or a creditor, the reappraisement in this case was proper. This statute reads:

"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 * * * ."

Two questions involving appraisement of a debtor's property, under said section, are involved. They are: (1) Upon a proper fact disclosure, may a second (or a third or a fourth) appraisal of a farmer-debtor's property be had under Sec. 75, sub. s(3)? (2) Under the facts in this case, where the Supreme Court has ruled on appellant's right to redeem, at said $6,000 appraisal, may there be a reappraisal and a value of $10,832 accepted as the basis of redemption?

The issue presented to the Supreme Court, on the former appeal, and by it settled, was this: A debtor has an absolute right to an appraisal and reasonable time thereafter to redeem, as against a creditor whose claim is secured by a mortgage on debtor's property, notwithstanding the debtor has continuously refused for several years, to comply with the order of the court which directed him to pay mortgagee, part of his crop each year.

The Supreme Court held that debtor's right to purchase at the appraisal price was superior to the mortgagee's right to sell the property upon a showing that debtor refused to pay the taxes or any part of the crops as rental or use of the property by him possessed. The parties are not agreed as to whether the Supreme Court also held that the appraisal price was fixed at $6,000 and could not be increased thereafter. This is the question now before us.

The former appeal which resulted in the Supreme Court decision, the interpretation of which provokes the present controversy, arose in this manner:

In 1915, a mortgage of $9,000 was placed on the farm involved in the litigation. Foreclosure of this mortgage was instituted in 1934, and in the same year the debtor filed his petition and secured an adjudication under Sec. 75 of the Bankruptcy Act. After the conciliation commissioner's report had been approved, wherein it was stated there was no possibility of conciliation, debtor was adjudged a bankrupt and, in the same month, the foreclosure decree was entered, the indebtedness being then $11,975.

The same year the land was sold under the foreclosure decree to mortgagee for the amount of its indebtedness. On October 30, 1935, the trustee named by the court below leased the property to the debtor for two-fifths rental. Thereafter, for four years, debtor remained in possession of the property, but refused to pay any part of the rent, and also refused to pay any taxes. After a dispute between the State Court and the U.S. District Court over right to possession was decided by the Supreme Court (304 U.S. 502, 58 S. Ct. 1025, 82 L. Ed. 1490), in favor of jurisdiction of the bankruptcy court, the real estate came under the undisputed control of the trustee.

The creditor then sought a dismissal of proceedings in said bankruptcy court. Its motion was denied. In 1938, debtor filed petition for appraisal, and to be allowed, within a reasonable time (March, 1940) the right to redeem at the determined appraisal price. This was nearly six years after the date of the sheriff's sale on the state foreclosure decree. Mortgagee, on the other hand, sought leave to sell the premises because of the debtor's refusal to comply with the order of the ...

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