Law Commons^™

Resolving Transnational Insolvencies Through Private Ordering, Robert K. Rasmussen

Michigan Law Review

There is no international bankruptcy law. No question, there are international insolvencies. Transnational firms, just like domestic ones, often cannot generate sufficient revenue to satisfy their debt obligations. Their financial distress creates a situation where assets and claimants are scattered across more than one country. But there is no international law that provides a set of rules for resolving the financial distress of these firms. The absence of any significant free-standing international bankruptcy treaty means that a domestic court confronted with the domestic part of a transnational enterprise has to decide which nation's domestic bankruptcy law will apply to which …

A Global Solution To Multinational Default, Jay Lawrence Westbrook

Michigan Law Review

A new world is slouching toward New York and London, Beijing and Bangkok, to be born. If our planet and our values survive the secondary effects of that emergence, we may look forward to a humanity more prosperous and more integrated than at any time in human history. The force that drives us to that future is free-market capitalism constrained in the vessel of democratic institutions. One important element in its progress is the fashioning of an international system for managing the financial crises that are one of the free market's inevitable consequences. In this symposium, we debate which is …

Federal Income Taxation--Section 165 (C) Loss Allowed For Securities Loaned To Brokerage Firm That Subsequently Became Insolvent And Sold The Securities To Meet The Claims Of Creditors--Stahl V. United States, Michigan Law Review

Michigan Law Review

It is frequently said that there are only two certainties in life: death and taxes. The Court of Appeals for the District of Columbia Circuit recently upheld a district court decision that considerably eased the latter burden for plaintiff-taxpayer in Stahl v. United States. On April 12, 1962, Mrs. Stahl, a widowed musician and music teacher, reached an agreement with Balough & Company (Balough), a Washington securities firm, under which she was to surrender to it control of securities with a market value of approximately $210,000. Balough used the securities to meet the minimum capital requirements for brokerage firms established …

Reclamation Of Goods From A Fradulent Buyer, Robert Braucher

Michigan Law Review

Sections 2-702(2) and (3) of the Uniform Commercial Code (Code), defining the right of a seller to reclaim goods from an insolvent buyer, have for years been the subject of controversy. The sponsors of the Code have stood firm on the basic policy of these sections for more than twenty-five years, but, in its 1966 Official Recommendations for Amendment of the Uniform Commercial Code, the Permanent Editorial Board includes an amendment striking the words "or lien creditor" from section 2-702(3). That change has already been made in six states: California, Illinois, Maine, New Jersey, New Mexico, and New York. In …

Bankruptcy-Prior Discharge Within Six Years As Bar To Wage Earner's Extension Plan, Anthony Lynch

Michigan Law Review

Appellant, a debtor, sought confirmation of a wage earners' extension plan pursuant to Chapter XIII of the Bankruptcy Act. Section 656 prohibits confirmation of a plan under Chapter XIII if the debtor would have been denied an ordinary discharge in bankruptcy had he been seeking one. A discharge within six years prior to the date of filing constitutes a bar to such discharge. The referee, finding that the debtor had obtained a discharge within six years, dismissed the proceedings. On appeal from the district court's affirmance, held, affirmed. Since a wage earner's extension plan clearly contemplates a discharge of …

Bankruptcy-Set-Off-Bank Deposits, A. E. Anderson S.Ed.

Michigan Law Review

Endorsers of a corporation's notes caused the corporation to make deposits in the payee bank in the regular course of business, knowing the corporation to be insolvent, and the bank took over the deposits within four months of adjudication in bankruptcy. It was contended that under the amended definition of "transfer" as set out in section 1 (30) of the Bankruptcy Act of 1938, this transaction resulted in a voidable preference to the endorsers under section 60. The trial court rejected this contention. On appeal, held, affirmed. Although the 1938 amendment gave a broader significance to the term "transfer" …

Banks And Banking - Immunity Of National Banks From State Escheat Statute, Spencer E. Irons

Michigan Law Review

A Michigan statute provided that bank deposits, in the possession or control of insolvent banks, which have remained inactive for a period of seven years or more shall escheat to the state. In a suit for a declaratory judgment, filed by the Attorney General of Michigan, against the receiver of an insolvent national bank and the Comptroller of the Currency of the United States, the federal district court held that the receiver must turn over deposits coming within the terms of the statute. Held, the statute is invalid if so applied, since it would constitute an unlawful interference with …

Equity - Specific Performance Of Contract To Lend Money, Robert C. Lovejoy

Michigan Law Review

Plaintiff, through the Mortgage Service Bureau, which acted as intermediary, negotiated a loan from defendant bank, secured by a mortgage on plaintiff's land. Plaintiff executed and delivered notes and a mortgage, and defendant drew a check for one of the loan installments payable to plaintiff and the bureau, The latter without authority took the check, forged plaintiff's signature, and kept the money. The bureau being out of business and insolvent, plaintiff, with an unfinished house on his hands and without funds to complete it, sought specific performance of the agreement to lend. Held, plaintiff was entitled to specific performance, …

Bankruptcy - Corporate Reorganization - Absolute Priority Rule, Kenneth J. Nordstrom

Michigan Law Review

-A plan for reorganization under section 77B of the Bankruptcy Act involved a debtor holding company and two subsidiaries. Each subsidiary had a bonded indebtedness which, including unpaid accrued interest, was in excess of the value of assets that were s

Trusts - Tort Liability Of Trustee In His Representative Capacity, Reid J. Hatfield

Michigan Law Review

Plaintiff brought suit to recover damages for injuries allegedly sustained because of the unsafe condition of a hotel building owned and operated by the defendant trustee. The trustee was an insolvent bank and trust company in the hands of the state superintendent of banks, who was also joined as defendant. The prayer was for a "judgment against the defendants in their fiduciary capacity toward the trust." On appeal of the lower court's judgment sustaining defendants' demurrer, held, that the trustee could be sued in his representative capacity. Carey v. Squire, 63 Ohio App. 476, 27 N. E. (2d) …

Some Problems Arising Out Of Deposits To Pay Principal And Interest On Bonds, Paul P. Lipton

Michigan Law Review

Since Lawrence v. Fox contracts students have been puzzled by the numerous and varying relations that may arise when A, the debtor, delivers money to B to pay C, his creditor. Equally puzzling and much more complicated are the rights and relations of the obligor, trustee and bondholders with respect to sums deposited with the trustee to pay principal and interest on bonds.

The insolvency during recent years of many large trust companies that had been named as trustees in indentures securing corporate bonds, having on hand at the time of their failure large sums of money which …

Bankruptcy-Corporate Reorganization - Fraternal Benefit Society Entitled To Benefits Of Section 77b, Russel T. Walker

Michigan Law Review

Plaintiff's right to petition for reorganization under section 77 B of the Bankruptcy Act was challenged on the ground that plaintiff was an "insurance corporation" within the meaning of section 4 of the Bankruptcy Act and therefore excepted from the benefits of the act. Held, that when Congress used the words "insurance corporation" in the Bankruptcy Act, it meant a corporation authorized by the law of its creation to do an insurance business. As Congress knew that the various States had authorized the formation of fraternal benefit societies, described as such in enabling statutes, when Congress passed this statute …

Banks And Banking - Relationship To Customers - Principal Or Creditor, Charles E. Nadeau

Michigan Law Review

A collection agreement permitted plaintiff to clear items through defendant bank in return for maintaining a balance of $10,000 which was not subject to check. All items received immediate credit, and twice weekly defendant bank remitted, in New York exchange, all amounts in excess of $10,000. On insolvency of defendant bank, plaintiff sought a preferred claim on the basis that the bank was its agent for collection. Held, where, as here, the bank may use the funds before remittance, or where the depositor may withdraw any part of the funds, the relationship is that of debtor-creditor and not of …

Corporations - Corporate Form Used To Evade Bank Double Liability, Michigan Law Review

Michigan Law Review

Plaintiff, the receiver for an insolvent bank, sued the individual stockholders of an investment corporation on an assessment to the amount of the par value of the bank stock as provided by the constitution and statutes of South Carolina. The investment corporation had been organized several years previously to secure control of a group of banks. Its holdings throughout consisted only of bank stock, and finally solely of stock of the closed bank. Plaintiff claimed, since the corporation had no assets, that the stockholders of the investment corporation were individually liable, because the use of a holding company for the …

Executors And Administrators -- Quasi-Contract Liability Of Decedent's Estate -- Administrative Expenses As A Prior Charge On The Estate, Ralph Winkler

Michigan Law Review

After the supply of feed for the decedent's livestock had been depleted and before the appointment of an administrator, the plaintiff furnished some grain at the request of the decedent's daughter and son-in-law, no other parties attempting to assist in any way. It was understood that the plaintiff would look to the estate for payment. In an action of contract against the administrator in his representative capacity for the value of the grain the court held that the plaintiff had a valid claim in quasi-contract against the estate, basing the decision upon "broad considerations of policy." Since the estate was …

Banks And Banking - Collections - Trust Or Debt, Michigan Law Review

Michigan Law Review

A certificate of deposit issued by A bank and owned by plaintiff was presented for collection in a routine clearance transaction between defendant bank and A bank. A bank paid for the several items presented with other items and a draft. The draft was dishonored. After both banks closed, defendant bank collected the amount of the draft from A bank as a preferred claim. Plaintiff seeks full payment of the certificate of deposit. Held, payment terminated the agency for collection and gave rise to a debtor-creditor relation, and, for this purpose, payment by draft was equivalent to any other …

Bankruptcy - Recovery Of Preferences - Requirement That Defendant Be Paid A Greater Percentage Of His Claim Than Other Creditors

Michigan Law Review

In a suit by the trustee in bankruptcy to recover as preferences part payments to defendant within four months of bankruptcy, the trial court refused to rule that the trustee had the burden of proving that each payment had the effect of giving to the defendant a greater percentage of his claim than other creditors would have received if the estate had been liquidated at that time. Held, the court's refusal was proper. Palmer Clay Products Co. v. Brown, 297 U.S. 227, 56 S. Ct. 450 (1936).

Corporations - Rights Of Creditors Of Insolvent Corporation - Greater Than Rights Of Corporation

Michigan Law Review

The dissenting and majority opinions of Justices Roberts and Cardozo in the recent case of McCandless v. Furlaud are illustrative of basically divergent conceptions of the status and function of the corporate receiver. In the following examination and evaluation of these conflicting positions, attention will be directed chiefly to those situations involving the problem of promoter's profits. The language and attitude of the courts, however, is typical of that adopted in all cases in which the questions considered arise and the conclusions suggested are of general application.

Corporations-Validity Of Option To Convert Preferred Stock Into Mortgage Bonds

Michigan Law Review

A corporation issued preferred stock, with a fixed dividend rate, power to elect a director voting as a class, and an option in the holder to convert, at his election, into mortgage bonds which were issued at the same time. After a substantial indebtedness had been incurred by the corporation, the stockholders exercised their option to convert into bonds. The corporation then went into bankruptcy, and in reorganization proceedings, the bondholders claim a preference over general creditors. Held, that the former holders of the preferred stock were stockholders and not creditors of the corporation and that, in the absence …

Assignments - Effect Of Assignment Of Contract By Receiver Of Liquidating Insolvent Corporation

Michigan Law Review

The Chicago Tribune contracted to furnish the Washington Post with four comics and two features at a stipulated price per week. The Post went into the hands of a receiver who continued the contract and eventually assigned it to the Washington Post Publishing Company, plaintiff, along with "all assets of said company [the Post] of every kind, character, and description, except cash." The Post then went out of existence. The plaintiff, assignee, sued to enforce the contract, tendering payment in cash. Held, that the contract was assignable, that there had been a valid assignment, and that the contract remained …

Banks And Banking - Reorganization Under Enabling Statutes Requiring Less Than Unanimous Agreement - Effect On Special Deposits

Michigan Law Review

The plaintiff issued drafts to the defendant bank under a special agreement that they were to cover certain checks already cashed or to be cashed. When a balance of such drafts stood at $2,000 in favor of the plaintiff, the defendant bank became insolvent. A North Dakota statute provided that if eighty per cent of the deposit creditors agreed to a plan of reorganization, and such plan was approved by the state bank examiner and the secretary of the guarantee fund commission, it was to be held binding on all other unsecured creditors. Eighty per cent of the depositors of …

Equity - Election Of Remedies - Proof Of Claim In Receivership

Michigan Law Review

Plaintiff sold certain chattels under a conditional sales agreement to a partnership which later went into receivership. The purchase price not having been paid, plaintiff filed a general claim with the receiver, which was allowed. Six months later, no dividend having been paid, plaintiff filed a petition to have the general claim withdrawn and a preferred one substituted, based on the title-retaining contract. The court held that by filing and allowance of the general claim plaintiff made a final election between inconsistent remedies which barred rescission and restitution of the specific property. The court held that the inexperience of plaintiff's …

Contracts - Fraud - Implied Representation Of Solvency

Michigan Law Review

Defendant, a wholesale grocer, had been losing steadily for months by selling below cost, and had assets of $83,000 against liabilities of $140,000 on Nov. 21, 1929. On that date he accepted a 90-day trade acceptance drawn by claimant for cases of tomato paste which he had ordered, and which claimant now seeks to reclaim on the ground of fraud. On December 3 defendant obtained the goods, and the next day went into involuntary bankruptcy. Held, that the buyer's promise to pay implies belief in reasonable ability to pay, and that concealment of belief to the contrary is fraud …

Bank Reorganization And Recapitalization In Michigan, Ellis B. Merry

Michigan Law Review

On January 2, 1933, 420 state and 68 national banks were operating in Michigan. On February 13, the Governor of Michigan proclaimed a banking holiday for eight days which was extended in effect on February 22. On March 4, the President proclaimed a national banking holiday until March 9. Under the provisions of the President's proclamation lifting the national banking holiday, 198 state and approximately 30 national banks were reopened by the appropriate authorities as "sound" banks. State bank conservators assumed the management and custody of 215 state banks which did not open, on appointment by the Commissioner of the …

Constitutional Law - Bank Reorganization Legislation - Composition With Depositors And Other Creditors, Maurice S. Culp

Michigan Law Review

Twenty States and the federal government now have laws permitting the reorganization and reopening of insolvent or failing banks. The usual statute provides for the reorganization of a bank upon some plan approved by a large majority of the general creditors of the institution; the plan must also have the approval of state banking officials and of a court of general jurisdiction, although the last is by no means a universal requirement. The reorganization, when approved, becomes binding upon all depositors and general creditors of the bank regardless of consent. By the terms of a few statutes, non-assenting creditors are …

Bankruptcy - Suspension Of State Statutes Regulating General Assignments

Michigan Law Review

An insolvent debtor made a voluntary assignment of. all his property to the defendants for the benefit of his creditors. The plaintiff, a nonassenting creditor, brought garnishment proceedings against the defendants, contending that the state statute governing general assignments had been suspended by the National Bankruptcy Act. The Wisconsin Supreme Court was of the opinion that only that portion of the Act which provides for a discharge of the assignor from his debts was suspended. On appeal to the United-States Supreme Court the decision was affirmed. Pobreslo v. Joseph M. Boyd Co., 287 U. S. 518, 53 Sup. …

Banks And Banking -Trust Funds - Deposits For A Special Purpose

Michigan Law Review

Plaintiff had an arrangement with defendant bank whereby receipts of certain of plaintiff's branch stores were to be deposited daily with defendant, and the latter was to transmit each day by draft to a bank in Pittsburgh for plaintiff's credit all sums in excess of a dormant balance of $2,000. Drafts covering two days' deposits were in process of transmission to the Pittsburgh bank when defendant bank was taken over by the Comptroller of the Currency. The deposits represented by these drafts were made at a time when defendant's officers and directors knew the bank to be insolvent, though negotiations …

Receivers - Extraterritorial Powers

Michigan Law Review

In these days of financial stress, the question of the extraterritorial powers of a receiver becomes especially acute. Though to the business man state lines have lost their significance, the lawyer is still confronted with independent sovereignties, both federal and state, each jealously safeguarding its own particular province. Receivers, appointed for an insolvent corporation or for a judgment debtor, seek to recover assets situated in foreign jurisdictions. Economy and expediency dictate the prevention of a dismemberment of the estates and the saving of expensive ancillary receiverships by a personal pursual on the part of the home receivers of those outlying …

Corporations - Obligation To Refund Dividends Paid Out Of Capital

Michigan Law Review

The general rule is fairly well established that, where dividends are paid, in whole or in part, out of the capital stock, corporate creditors, being such when the dividend was declared, or becoming such at any subsequent time, may, to the extent of their claims, if such claims are not otherwise paid, compel the stockholders to whom the dividend has been paid to refund whatever portion of the dividend was taken out of the capital stock. This, however, has been modified in the federal courts to the extent that where the dividend, although paid entirely out of capital, was received …

When Is A Corporation Insolvent?, Floyd Mathew Rett

Michigan Law Review

There is general unanimity that as to real persons "insolvency" means the inability of a debtor to pay his obligations as .they fall due in the usual course of business - even though the value of his assets exceeds the aggregate of his liabilities. But the question - when is a corporation insolvent - the question to which this paper is devoted, is one with very varied answers. The answers may vary both with the nature of the corporation concerned and with the type of transaction involved. There are, however, two conventional definitions of corporate "insolvency," with occasional variations and …