Louisville Joint Stock Land Bank v. Radford

Background

Radford, a farmer, mortgaged a 170‑acre farm to the Louisville Joint Stock Land Bank in 1922 and 1924. After defaults on taxes, interest, and insurance, the bank sued to foreclose and obtained a sale order. Radford tried to make a composition with creditors under §75 but failed to get the necessary approvals. Congress then passed the Frazier‑Lemke Act adding subsection (s), which gave a bankrupt farmer either a chance to buy the land at an appraised value on long, low‑interest deferred terms if the lender agreed, or, if the lender refused, a five‑year stay in which the farmer could keep possession while paying court‑fixed rent and later buy at the appraised or a reappraised price. Appraisers valued the mortgaged land at $4,445 while the bank offered $9,205.09 in cash; the bankruptcy referee and lower federal courts approved the five‑year stay.

Reasoning

The Court addressed whether subsection (s) is constitutional. It examined Kentucky law to identify the mortgagee’s rights before the Act — the right to retain the lien, force a judicial sale, control the timing of sale, bid at foreclosure, and have rents collected by a receiver — and concluded the Act, as applied, took away those substantive rights. Because that taking of mortgagee property rights was accomplished without just compensation, the Court found it violated the Fifth Amendment and could not be sustained.

Real world impact

The decision prevents courts from enforcing the Frazier‑Lemke Act’s compulsory five‑year possession and reduced‑price purchase options against mortgages that existed before the law. Mortgage lenders keep their traditional protections against forced surrender of security; if similar transfers are to be made, Congress must provide compensation by appropriate means, such as eminent‑domain procedures. The ruling does not decide the full scope of Congress’s bankruptcy power over future mortgages.