Indiana Law Review Note The Continuing Vitality of Louisville Joint Stock Land Bank v. Radford: Persuasive Authority for Cases Declaring Retroactive Application of Section 522(f) Of the Bankruptcy Code Unconstitutional I. Introduction The constitutionality of retroactive legislation has traditionally been tested with strict judicial scrutiny. During the Great Depres- sion, the United States Supreme Court struck down retroactive bankruptcy legislation as a violation of the fifth amendment in Louisville Joint Stock Land Bank v. Radford. 1 As a result, the Bankruptcy Act2 was amended, and in subsequent cases the Court upheld the constitutionality of the amended Act, limiting, to a degree, Radford.3 Recently, both Radford and succeeding decisions have been resurrected in bankruptcy cases testing the constitu- tionality of retroactive applications of section 522(f) of the Bankrupt- cy Code.4 A number of courts have relied on Radford in declaring retroactive application of section 522(f) unconstitutional, while others have upheld the constitutionality of such application, either by minimizing the precedential value of Radford or by ignoring the decision completely. This Note explores the Radford decision, its refinement in subsequent decisions, and the continuing precedential value of Rad- ford as authority for declaring retroactive application of section 522(f) of the Bankruptcy Code to be in violation of the fifth amend- ment. This Note supports the decisions invalidating retroactive ap- plication of section 522(f) on the authority of the Radford decision. *295 U.S. 555 (1935). bankruptcy Act of 1898, 11 U.S.C. §§ 1-1103 (1976) (repealed Oct. 1, 1979, Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, § 401(a), 92 Stat. 2549) [hereinafter cited as the Act]. 'Wright v. Union Cent. Life Ins. Co., 311 U.S. 273 (1941); Wright v. Vinton Branch of the Mountain Trust Bank, 300 U.S. 440 (1937). bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549 (codified at 11 U.S.C. §§ 101-151326 (Supp. IV 1980)). Section 522(f) appears in 11 U.S.C. § 522 (f) (Supp. IV 1980). 593 594 INDIANA LAWREVIEW [Vol. 15:593 II. Judicial Review of Retroactive Bankruptcy LEGISLATION: PAST AND PRESENT In 1934, Congress enacted the Frazier-Lemke Act,5 an amend- ment to section 75 of the Bankruptcy Act6 designed to protect farmers from Depression foreclosures.7 The original Act allowed a debtor to retain mortgaged property under court-ordered supervi- sion after obtaining a five-year stay of foreclosure proceedings. At the end of the five year period, the debtor was allowed to pay a court-determined price to redeem the property, with the creditor losing all rights under the mortgage, except for the price paid into court. 8 In the event the debtor defaulted on his payments, the Act allowed the secured creditors to enforce their interests in accor- dance with the law.9 Alternatively, if all terms of the sale were com- plied with, the debtor was allowed to apply for his discharge.10 Fur- thermore, the Act was to apply only to mortgage interests created prior to its enactment.11 The constitutionality of the Frazier-Lemke Act was tested by the United States Supreme Court in 1934, in Louisville Joint Stock Land Bank v. Radford.12 The Court stuck down the Act, declaring its retroactive application violative of the fifth amendment as an un- compensated taking of "substantive rights in specific property ac- quired by the Bank prior to the Act."13 The following year, the Act was amended,14 with the intention of preserving the property rights 15 held to have been taken in the Rad- 5Pub. L. No. 73-486, 48 Stat. 1289 (1934) (repealed 1978) [hereinafter cited as the Frazier-Lemke Act] "Section 75 was added by An Act of March 3, 1933, Pub. L. No. 72-420, 47 Stat. 1470 (1933). 7Note, Constitutionality of Retroactive Lien Avoidance Under Bankruptcy Code Section 522(f), 94 Harv. L. Rev. 1616, 1619 (1981) [hereinafter cited as Harvard Note]. 8 3 Collier on Bankruptcy f 522.29 (15th ed. L. King 1979). 9Frazier-Lemke Act, supra note 5. 10 Id. n IcL at 1291. 12295 U.S. 555 (1935). n Id. at 590. "Frazier-Lemke Act, Pub. L. No. 74-384, § 6, 49 Stat. 943 (1935) (repealed 1978). 16The rights enumerated by the Court were: 1. The right to retain the lien until the indebtedness secured is paid. 2. The right to realize upon the security by public judicial 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. 1982] CONTINUING VITALITY 595 ford decision. The amended Frazier-Lemke Act was reviewed by the Supreme Court in Wright v. Vinton Branch of the Mountain Bank. 16 The Court in Wright declared the amended version constitutional, holding that it preserved three of the five rights enumerated in Radford and gave bankruptcy courts sufficient discretion to protect a mortgagee's interest. 17 The scope and application of the second Frazier-Lemke Act was later questioned and upheld in Wright v. Union Central Life In- surance Co.18 The Supreme Court in Union Central held that under the Act, "[safeguards were provided to protect the rights of secured creditors, throughout the proceedings, to the extent of the value of the property. There is no constitutional claim of the creditor to more than that." 19 The Court's decisions in Radford and the Wright cases* along with its decision in Kuehner v. Irving Trust Co. 20 have recently been a topic of controversy in certain bankruptcy cases 21 discussing the constitutionality of section 522(f) 22 of the Bankruptcy Reform Act of 1978. 23 Section 522(f) allows the debtor in bankruptcy to avoid judicial liens and certain nonpossessory non-purchase money24 security in- terests to the extent these liens impair the debtor's interest in cer- tain personal property that would qualify as an exemption under section 522(b). 25 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. 295 U.S. at 594-95. 16300 U.S. 440 (1937). 17 Jd. at 458-68. 18 311 U.S 273 (1941). 19 Id. at 278. 20299 U.S. 445 (1937) (upholding congressional authority to impair contractual obligations). 21See Rodrock v. Security Indus. Bank, 642 F.2d 1193 (10th Cir. 1981), affg Jackson v. Security Indus. Bank (In re Jackson), 4 Bankr. 293 (D. Colo. 1980), and Rodrock v. Security Indus. Bank (In re Rodrock), 3 Bankr. 629 (D. Colo. 1980); Malpeli v. Beneficial Fin. Co. (In re Malpeli), 7 Bankr. 508 (N.D. 111. 1980); Oldham v. Beneficial Fin. Co. (In re Oldham), 7 Bankr. 124 (D.N.M. 1980); Hawley v. Avco Fin. Servs. (In re Hawley), 4 Bankr. 147 (D. Or. 1980). 22 11 U.S.C. § 522(f) (Supp. IV 1980). 23 Pub. L. No. 95-598, 92 Stat. 2549 (codified at 11 U.S.C. §§ 101-151326 (Supp. IV 1980)) [hereinafter cited as the Bankruptcy Code or the Code]. "U.C.C. § 9-107 defines "purchase money security interest" as a security interest that is taken or retained by the seller of the collateral to secure all or part of its price ... or taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in or the use of collateral if such value is in fact so used. 25Types of exempt property consist mainly of household goods, personal items, 596 INDIANA LA WREVIEW [Vol. 15:593 Numerous cases have arisen since section 522(f) was enacted which discuss the constitutionality of the provision when applied to security interests created prior to the enactment date of the Bankruptcy Code.26 In various cases, the secured creditors have relied on the Radford decision as authority for the proposition that such retroactive lien avoidance is violative of the due process or tak- ings clause of the fifth amendment.27 The debtors, on the other hand, along with the United States as an intervenor in support of the pro- vision, 28 have contended that the Wright decisions and the Supreme Court's decision in Kuehner v. Irving Trust Co., have caused such an erosion of Radford that it is without vitality.29 A. The Radford Decision The Supreme Court's decison in Louisville Joint Stock Land Bank v. Radford30 was the first in a series of cases articulating the constitutional limitations on the power of Congress to enact uniform laws of bankruptcy.31 The issue in Radford was whether the Frazier- Lemke Act32 was consistent with the United States Constitution.33 In 1922 and 1924, Radford, an indebted farmer, mortgaged his farm to the Louisville Joint Stock Land Bank (the Bank) to secure crops, tools of the trade, and professionally prescribed health aids. See 11 U.S.C. § 522(f)(2)(A) to (C). 26There was nearly an 11 month lag between the Code's enactment date, November 6, 1978, and its effective date, October 1, 1979. "The Court in Radford invalidated the Frazier-Lemke Act as a violation of the takings clause. 295 U.S. 555, 602 (1934). However, in Wright v. Vinton Branch of the Mountain Trust Bank, 300 U.S. 440 (1937), the Supreme Court described Radford as in- validating the Frazier-Lemke Act on due process grounds, rather than on an un- compensated takings basis. Id. at 457. This discrepancy has caused some controversy. See, e.g., Note, Lien Avoidance Under Section 522(f) of the Bankruptcy Code: Is Retrospective Application Constitutional?, 49 Fordham L. Rev., 615, 629 n.74 (1981); Harvard Note, supra note 7, at 1623, 1629. However, the majority of the bankruptcy courts relying on Radford to declare retroactive application of section 522(f) unconstitu- tional have characterized Radford as a "due process" decision. See, e.g., cases cited note 21 supra. But see Armstrong v. United States, 364 U.S. 40, 44 (1960); Harvard Note, supra note 7, at 1630-32 (characterizing the Radford decision as relying on the takings clause). "E.g., Rodrock v. Security Indus. Bank, 642 F.2d 1193 (10th Cir. 1981). ^Rodrock v. Security Indus. Bank (In re Rodrock), 3 Bankr. 629, 631 (D. Colo. 1980). 30295 U.S. 555 (1934). 31Note, Constitutional Limitations on the Bankruptcy Power: Chapter XII, Real Property Arrangements, 52 N.Y.U. L. Rev. 362, 384 (1977) [hereinafter cited as NYU Note]. 32Frazier-Lemke Act, supra note 5. 33295 U.S. at 573. 1982] CONTINUING VITALITY 597 loans of $9,000. 34 Subsequently during the Great Depression, Radford defaulted on convenants to pay taxes and to insure buildings on the farm, and also on his payments of interest and principal.36 The Bank urged Radford to refinance his indebtedness, but he declined to do so. 36 In June of 1933, the Bank filed a foreclosure suit and sought to appoint a receiver to take possession and control of the premises and to collect rents and profits.37 The appointment of a receiver was denied, and the foreclosure suit was stayed upon request of a Con- ciliation Commissioner acting under the authority of section 75 of the Bankruptcy Act which Radford had sought to invoke. Radford attempted to effect a composition of his debts, but failed to obtain the necessary creditor acceptance.38 Consequently, the state court, on June 30, 1934, ordered a foreclosure sale. However, the Frazier- Lemke Act was passed the preceding week, and Radford filed for relief, praying to be adjudicated a bankrupt and asking for relief under paragraphs 3 and 7 of subsection (s) of the Act.39 Paragraph 3 provided for the sale of the bankrupt estate back to the debtor with the consent of the lienholders. This paragraph also outlined a specific payment plan, with payments going to the credit of the lienholders as their interests appeared.40 Paragraph 7 provided that if the mortgagee did not agree to the purchase outlined in paragraph 3, the debtor could require the court to: [S]tay all proceedings for a period of five years, during which five years the debtor shall retain possession of all or any part of his property, under the control of the court, provided he pays a reasonable rental annually for that part of the property of which he retains possession. . . .41 The Act specified that its provisions were to apply only to debts ex- isting at the time the Act became effective.42 The Bank in Radford refused to consent to a sale of the farm under paragraph 3 of the Frazier-Lemke Act, and it objected to Rad- 86ta at 573-74. "Id. at 574. 37An express covenant contained in the Radford mortgage agreement provided for the appointment of a receiver in the event of default. 38A composition was a pay-back plan proposed by the debtor. The plan could be implemented only if accepted by both a majority of the number of creditors and any creditors who collectively held over half of the amount of indebtedness. 39295 U.S. at 575. 40Frazier-Lemke Act, supra note 5. 41ta at 1291. "Id 598 INDIANA LAWREVIEW [Vol. 15:593 ford retaining possession under the five-year stay provided by paragraph 7.43 The federal court overruled the Bank's objections and went on to adjudicate Radford a bankrupt. Eventually, a court- appointed referee ordered, pursuant to paragraph 7, a five-year stay and left possession of the property with Radford subject to a stipulated rental payment.44 The Bank appealed all of the referee's orders, but the orders were affirmed in both the federal district court45 and the Sixth Circuit Court of Appeals.46 Throughout the lower court proceedings, and ultimately before the United States Supreme Court, the Bank argued that application of the Frazier-Lemke Act had resulted in an "oppressive and un- necessary destruction of nearly all the incidents that give attrac- tiveness and value to collateral security."47 The Bank contended that the Act's solely retrospective application was violative of the fifth amendment.48 Radford, on the other hand, contended that the Act was valid as a proper exercise of Congress' constitutional power to establish uniform bankruptcy laws.49 1. Protection of the Mortgagor Versus the Rights of the Mor- tgagee.— Before announcing its decision, the Court in Radford discussed the historic struggle of courts and legislators to protect mortgagors while preserving the rights of mortgagees. The Court noted several judicial and legislative remedies created to provide relief to mortgagors.50 The fate of a mortgagor had evolved from the practice of strict foreclosure51 to the remedy of redemption as well as to statutes allowing the mortgagor to retain possession after default until foreclosure proceedings were complete.52 However, despite the increased leniency of these remedies, the mortgagee was always to be compensated for the default by full payment of the principal plus interest.53 43295 U.S. at 576. "Id. at 577-78. i6 In re Radford, 8 F. Supp. 489 (W.D. Ky. 1934). "Louisville Joint Stock Land Bank v. Radford, 74 F.2d 576 (6th Cir. 1935). Both the district and circuit courts also ruled in support of the constitutionality of the Frazier-Lemke Act. 47295 U.S. at 578. "Id. **Id. For a brief discussion of congressional bankruptcy power, see generally L. Tribe, American Constitutional Law § 5-11, at 250-52 (1978). 50295 U.S. at 578-81. "Under the doctrine of strict foreclosure the mortgagor had no right of redemp- tion upon default. 52See Chaplin, The Story of Mortgage Law, 4 Harv. L. Rev! 1 (1890) for a discus- sion of the history of mortgage law. ^See generally Feller, Moratory Legislation, 46 Harv. L. Rev. 1061 (1933). 1982] CONTINUING VITALITY 599 The Court noted that historically, a mortgagee was never com- pelled to forego his right to insist upon full payment before giving up the security. Even when public sale superseded strict foreclosure, the mortgagee was able to insure his right to full pay- ment by bidding at the sale.54 Furthermore, statutes providing for retroactive application for the relief of mortgagors had only passed constitutional scrutiny when they were found to preserve the mort- gagee's right to full payment through application of the security.55 The Court in Radford emphasized that not until the enactment of the Frazier-Lemke Act had a mortgagee been compelled to relin- quish this right to payment in full.56 After careful analysis, the Court concluded that prior to this enactment, no federal bankruptcy provision had ever attempted to enlarge the rights and privileges of a mortgagor as against the mortgagee, yet the Frazier-Lemke Act forced the mortgagee to sur- render either the possession or the title to the mortgaged property while part of the debt remained unpaid.57 2. Constitutionality of the Frazier-Lemke Act. —After rejecting a tenth amendment challenge, the Court focused on the retroactive aspect of the Frazier-Lemke Act. Noting that the Act was retrospec- tive and as "applied purported] to take away rights of the mor- tgagee in specific property,"58 the Court reviewed the Act in light of the constitutional constraints of the fifth amendment.59 Although the fifth amendment does not prohibit congressional impairment of con- tract rights, 60 the rights at issue in Radford were not of a contrac- tual nature. Rather, the rights taken by application of the Frazier- Lemke Act were "substantive rights in specific property acquired by the Bank prior to the Act."61 As such, these rights in property were within the scope of fifth amendment protection.62 To determine the nature of these substantive rights, the Court looked to the property law of Kentucky, the state in which the con- troversy arose. There was no provision under Kentucky law permit- ^S U.S. at 579-80. 66Home Bldg. and Loan Ass'n v. Blaisdell, 290 U.S. 398 (1934). M295 U.S. at 579. 57Jd at 581-82. M /d. at 589. The Court indicated that prospective application would be permissi- ble: "The power over property pledged as security after the date of the Act may be greater than over property pledged before. . . ." Id. 69See Harvard Note, supra note 7, at 1622-24, discussing Supreme Court decisions on bankruptcy power and the fifth amendment. *°See generally Hale, The Supreme Court and the Contract Clause, 57 Harv. L. Rev. 852 (1944). 61295 U.S. at 590. "Id. at 589. 600 INDIANA LAWREVIEW [Vol. 15:593 ting a mortgagor to obtain a release of the mortgaged property before foreclosure without paying his debt in full. Thus, the Court concluded that the controlling purpose of Kentucky law was for the mortgaged property to be devoted primarily to the satisfaction of the debt thereby secured.63 However, according to the Court, the Frazier-Lemke Act had substituted only the following alternatives for the rights the mort- gagee had acquired under state law: 1) The sale authorized by paragraph 3 4t would result merely in a transfer of possession to the bankrupt for six years with an other- wise unsecured promise to purchase at the end of the period for a price less than the appraised value."64 The mortgagee would prob- ably lose his right to full satisfaction of the debt by accepting a price lower than the appraised value.65 2) If the sale was not agreed to by the mortgagee, paragraph 7 provides that the mortgagee is compelled to surrender to the bankrupt possession of the property for the period of five years .... During that period the bankrupt has an option to purchase the farm at any time at its appraised value. . . . The mortgagee is not only compelled to submit to the sale to the bankrupt, but to a sale at such time as the latter may choose. . . . Thus the mortgagee is af- forded no protection if the request [for purchase by the bankrupt] is made when values are depressed to a point lower than the original appraisal.66 Having left the mortgagee with only these alternatives, the Frazier-Lemke Act was held to have taken from the Bank five substantive property rights recognized by the law of Kentucky67 without just compensation.68 Therefore, the Court declared the Frazier-Lemke Act void as a violation of the fifth amendment.69 III. The Refinement of Radford by Subsequent Case Law In the recent bankruptcy cases on section 522(f) which discuss the vitality of the Radford70 decision, debtors attacking the authori- 63ta at 590-91. "Id. at 591. 65 /d. "Id. at 592-94. 91 Id. at 594-95. For the five property interests see note 15 supra. See also NYU Note, supra note 31, at 384-85. 6SSee note 27 supra. "295 U.S. at 602. 70 Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555 (1935). 1982] CONTINUING VITALITY 601 ty of Radford have contended that three United States Supreme Court cases decided after Radford have had the effect of eroding the precedential value of Radford. 71 The cases primarily relied upon are Kuehner v. Irving Trust Co.™ Wright v. Vinton Branch of the Moun- tain Trust Bank,13 and Wright v. Union Central Insurance Co. 14 A. Kuehner v. Irving Trust Company; Distinguishing Between the Impairment of Contract and Property Rights The issue in the Kuehner case was whether subsection (b)(10) of section 77B of the Bankruptcy Act,75 which limited a landlord's claim under an indemnity covenant contained in a lease to an amount not to exceed three years rent, was "obnoxious to the Fifth Amendment of the Constitution." 76 As in Radford, the case dealt with the impair- ment of rights under prior agreement between the parties. In Kuehner, the petitioners had entered into a 20-year lease with the United Cigar Stores Company (United). Six years after entering the lease, United declared bankruptcy. Eventually, its trustee, Irving Trust Company, rejected its lease with Kuehner. Kuehner reentered and terminated the leasehold in accordance with the lease which contained a covenant by United to indemnify Kuehner against all loss of rent from such termination. Subsequently, section 77B was enacted and United filed its petition for reorganiza- tion. The petition was approved by the court.77 Upon review by the Supreme Court, Kuehner attacked section 77B as violative of the constitutional limits of the bankruptcy power of Congress as well as of the fifth amendment. The petitioners relied on a statement in the Radford decision to demonstrate the unlawfulness of the statute as an impermissible extension of con- gressional bankruptcy power.78 Kuehner asserted that Radford stood as persuasive authority for the principle that a statute cannot preserve specific property for the debtor's future use but rather can only protect the bankrupt from liens on future acquisitions. 79 Kuehner asserted that section 77B provided for such a preservation of property and as such was unconstitutional.80 The Court rejected nSee cases cited note 21 supra. 72 299 U.S. 445 (1937). 73 300 U.S. 440 (1937). 74 311 U.S. 273 (1941). 75 11 U.S.C. § 207 (1976) (repealed 1978). 76299 U.S. at 447. 77/d 18 Id. at 448-49. 79299 U.S. at 451. B0 Id. 602 INDIANA LAWREVIEW [Vol. 15:593 this contention and found the statute to be within the discretionary power of Congress to effect an equitable distribution of the debtor's assets among his creditors.81 Nevertheless, the Court noted that Congress' power was subject to the due process guarantees of the fifth amendment.82 Kuehner asserted that application of section 77B resulted in a destruction of his rights acquired under the lease. Kuehner conceded that these were not property rights as in Radford, but maintained nevertheless that the fifth amendment assured him some protection of these rights. 83 The Court, however, disagreed with this assertion and looked to Radford for authority. "As pointed out in [Radford] . . . there is, as respects the exertion of the bankruptcy power, a significant dif- ference between a property interest and a contract, since the con- stitution does not forbid impairment of the obligation of the latter." 84 The Court in Kuehner concluded that section 77B was con- stitutional in that it was merely an impairment of contract rights under a lease and an impairment that was consistent with the fifth amendment and consonant with a fair, reasonable, and equitable distribution of the debtor's assets. 85 The Kuehner case is easily distinguishable from Radford because it dealt with the contract rights of a creditor as opposed to a creditor's substantive rights in specific property.86 Rather than representing a step "in the flight away from Radford"87 Kuehner em- phasizes the Radford principle that congressional bankruptcy power is subject to fifth amendment restraints serving to protect the prop- erty rights of a creditor. B. Wright v. Vinton Branch of the Mountain Trust Bank: Preserving Three of the Five Rights Enumerated in Radford The constitutionality of the Act, as amended after the Radford decision, was reviewed by the Supreme Court in Wright v. Vinton Branch of the Mountain Trust Bank. 68 In upholding the new amend- 81 ld. 82 295 U.S. at 589. 83 299 U.S. at 452. Compare Louisville Joint Stock Land Bank v. Radford, 295 U.S. at 589 ( u [u]nder the bankruptcy power Congress may discharge the debtor's personal obligation because unlike the States, it is not prohibited from impairing the obligation of contracts") with Harvard Note, supra note 7, at 1626 & n.72. 84299 U.S. at 451-52. B5 Id. at 452. 86Rodrock v. Security Indus. Bank (In re Rodrock) 3 Bankr. 629, 633 (D. Colo. 1980). "Id. 88 300 U.S. 440 (1937). 1982] CONTINUING VITALITY 603 ed version, the Court noted that the Act, in general, met the guidelines of Radford. Writing for the Court in Vinton Branchy as he had done in Rad- ford, Justice Brandeis interpreted Radford as saying that the original Frazier-Lemke Act [A]s applied to mortgages given before its enactment . . . violated [the fifth] amendment since it 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 ef- fect of the statute in its entirety was to deprive the mort- gagee of his property without due process of law.89 The Court then noted that the authors of the new Frazier-Lemke Act had made a specific effort to preserve the substantive rights discusssed in Radford.90 The amended version of Frazier-Lemke specifically preserved three of the five enumerated rights: (1) the right to retain the lien until the indebtedness thereby secured is paid, 91 (2) the right to realize upon the security by a judicial public sale, 92 and (3) the right to protect the mortgagee's interest in the property by bidding at such sale whenever held.93 The Bank's major challenge to the constitutionality of the amended Act rested upon the contention that the Act denied the Bank the right to determine when a judicial sale of the land could be held, subject only to the court's discretion, and that the Act 89300 U.S. 457. See note 27 supra. 90300 U.S. at 457. "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." Id. "Paragraph one of the amended Frazier-Lemke Act provided that the debtor's possession "under the supervision and control of the court," would be "subject to all existing mortgages, liens, pledges, or encumbrances" and that "all such existing mort- gages, liens, pledges or encumbrances shall remain in full force and effect, and the prop- erty covered by such mortgages, liens, pledges or encumbrances shall be subject to the payment of the secured creditors as their interests may appear." Pub. L. No. 74-384, § 6, 49 Stat. 943 (1935) (repealed 1978). 92Paragraph three covered this right: "[U]pon 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." Pub. L. No. 74-384, § 6, 49 Stat. 944 (1935). 93Although the Act did not specifically preserve this right in its terms, the Court determined that committee reports and congressional explanations made it clear that the mortgagee was meant to have this right. 300 U.S. at 459. See H.R. Rep. No. 1808, 74th Cong., 1st Sess. 1, 5, 6 (1935). 604 INDIANA LAWREVIEW [Vol. 15:593 therefore violated the fifth amendment.94 The Bank complained that the new Frazier-Lemke Act gave the debtor an absolute right to a three-year stay, and that such a stay deprived it of its right to determine when the property should be sold.95 The Court, however, was of the opinion that the stay was not an absolute one, and that the amended version of the Act gave the court sufficient discretion under paragraphs 2 and 3 to protect the mortgagee's interest.96 The provisions of paragraph 3 clearly in- dicated that the stay was not absolute in that the court could order a sale any time it appeared that the debtor could not rehabilitate himself, or if the debtor failed to comply with the provisions of the Act.97 Paragraph 2 gave the court the additional discretionary power to order additional payments on the principal owed by the debtor if these payments were necessary to protect the creditors from loss or to conserve the security.98 In light of these protective safeguards, the Court concluded that the amended Act could pass constitutional muster without specifically reserving the creditor's right to deter- mine the date of judicial sale.99 The Bank's final argument was that the Act denied the Bank "the right to control meanwhile the property during the period of default, subject only to the discretion of the court, and to have rents and profits collected by a receiver for the satisfaction of the debt." 100 The Bank contended that the mortgagor's retention of possession was less favorable than possession by a receiver or trustee. The Court rejected this argument, noting Congress' legitimate interest in aiding victims of the Depression, and pointing out that the mort- gagor, vitally interested in the property, could better serve the in- terests of all concerned.101 The Court upheld the constitutionality of the amended Frazier-Lemke Act, holding that it specifically pre- served three of the five rights outlined in Radford, 102 and gave the court sufficient discretion to protect the mortgagee's interest under the other two.103 As such, the Act did not unreasonably modify the Bank's rights. 104 94 300 U.S. at 460. 95 Id. The stay was provided for in paragraph 2 of section 75. 96 300 U.S. at 461-64. See Harvard Note, supra note 7, at 1623. 97300 U.S. at 461. 98/d at 461-62. "Id. at 464. m Id. at 465-66. m Id. at 466. 102Rodrock v. Security Indus. Bank {In re Rodrock) 3 Bankr. 629, 633 (D. Colo. 1980). 103Harvard Note, supra note 7, at 1623. 104 300 U.S. at 470. 1982] CONTINUING VITALITY 605 The Court's holding in Vinton Branch could be viewed as a limitation upon Radford in that it upheld the constitutionality of the Frazier-Lemke Act although the Act only specifically preserved three of the five rights discussed in Radford. However, even under the Radford decision, the two rights that the amended Act pur- portedly failed to preserve had strictly been subject to the court's discretion, 105 and the Court in Vinton Branch purposefully noted that the amended Act gave the court sufficient discretion to protect the creditor's interest without specific reservation of these rights.106 Moreover, in its redraft of the Frazier-Lemke Act, Congress re- served the mortgagee's right to retain his lien until full satisfaction of the debt owed, as well as the right to satisfaction of the debt through the secured property. "These are perhaps the quintessential rights of any secured creditor, and to say, therefore, that Vinton Branch represents an erosion of Radford is to disregard the significance of the rights available to secured creditors following the Frazier-Lemke amendment."107 C. Wright v. Union Central Life Insurance Company: Limiting the Claim of a Secured Creditor Of the three cases discussed in this section, Wright v. Union Central Life Insurance Co. 108 is perhaps the only decision to significantly limit the Radford holding. As in Vinton Branch, Union Central dealt with the amended version of the Frazier-Lemke Act. The issue in the case was whether under paragraph 3 of the Frazier- Lemke Act, the debtor must be accorded an opportunity, at his own request, to redeem the mortgaged property at a reappraised value before the court could order a public sale. 109 The controversy in Wright emerged from two seemingly incon- sistent provisions contained in paragraph 3 of the amended Frazier- Lemke Act. The first stated 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 . . . and the debtor shall 105295 U.S. at 594-95. The rights not preserved were 3. The right to determine when such sale shall be held, subject only to the discretion of the court . . . 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. Id. (emphasis added). 1M300 U.S. at 464. 107 3 Bankr. at 633. 108311 U.S. 273 (1940). i09 I