Bankruptcy Law Commons^™

Bankruptcy -Test Of Insolvency - Fair Valuation Of Debtor's Assets, William F. Hood

Michigan Law Review

An objecting creditor seeking to preserve his judgment lien appealed from an order adjudicating B a bankrupt. The alleged act of bankruptcy was that B, while insolvent, permitted the objecting creditor to obtain a lien on his property by judicial proceedings and failed to discharge it within thirty days. B's principal asset was his interest in a spendthrift trust fund, valued at more than a million dollars, set up in favor of B and his brother. Under the terms of the trust each beneficiary was to receive one-half the approximately $44,000 a year income until he reached the …

Bankruptcy - Debts Not Affected By A Discharge - Goods Purchased When Insolvent With No Intent To Pay, William C. Wetherbee Jr.

Michigan Law Review

Respondent was suing the debtor in a municipal court of Georgia for goods purchased on account. When the debtor was ajudicated a bankrupt, the respondent changed his action from contract to tort by alleging that the bankrupt had purchased the goods when insolvent with no intent to pay for them. A judgment was obtained by respondent and the bankrupt subsequently received a discharge in bankruptcy. The bankrupt now asks that the respondent be enjoined from further proceeding to enforce this judgment by garnishment or in any other manner. Respondent claims that the judgment was not discharged since it was a …

Bankruptcy - Right Of Trustee Against Claimant Of Vendor's Lien, Michigan Law Review

Michigan Law Review

More than four months before bankruptcy the vendor sold an automobile truck to the bankrupt grocer under an unrecorded conditional sales contract, and a part of the purchase money, represented by an installment note, is still owing. The appellant was assigned the contract and note before the first installment became due. The truck was turned over to the trustee in bankruptcy, who sold it and holds the proceeds. Appellant filed a claim in bankruptcy asserting a statutory purchase money lien. Held, that the lien of the vendor prevails over the trustee. Commercial Credit Co. v. Davidson, (C. C. …

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) …

Bankruptcy - Effect Of Discharge - Suspension Of Driver's License For Non-Payment Of Judgment As Conflicting With The Bankruptcy Act, Walter Muller

Michigan Law Review

Under section 94-b of the New York Vehicle and Traffic Law, as amended in 1936 and 1939, if a judgment entered against a driver for 'damages for injury to person or property remains unpaid for fifteen days, the clerk of the court where the judgment was entered must (but only upon written demand of the judgment creditor) forward a copy thereof to the commissioner of motor vehicles, whose duty it then becomes to suspend the driving license of such judgment debtor; further, section 94-c provides (a) that such suspension shall continue for such part of three years as the judgment …

Fraudulent Conveyances - Executory Consideration As "Fair Consideration" Under The Uniform Fraudulent Conveyance Act, Robert Kneeland

Michigan Law Review

Plaintiff, a purchaser of mortgaged realty, claimed that there had been a series of conveyances of this property originating with a remote grantor, fraudulent as to said grantor's creditors. At the time plaintiff learned of this, he had already paid taxes on the property and paid $4605 on the purchase price, leaving a balance of $2986 due on his contract. Since, allegedly, plaintiff would have been subject to an action of the creditors to have the conveyance to him set aside/ plaintiff sought to join all creditors and defrauders in an attempt to clear the title, or, if the transaction …

Glenn On Fraudulent Conveyances And Preferences, Fred T. Hanson

Michigan Law Review

Professor Glenn's new two volume work on Fraudulent Conveyances and Preferences is much more than a revised edition of his previous book. The treatment of preferences is new and the material in the old book is revised and expanded. This expansion is particularly evident in his dealing with commercial financing devices--consignments, trust receipts, after-acquired property clauses, and freehanded mortgages of goods and accounts--which he now views also from the standpoint of preference.

Bankruptcy - Collection Of Assets - Satisfaction Of Conversion Claim From Non-Estate Assets, Jerry P. Belknap

Michigan Law Review

It is well-settled that a trustee in bankruptcy must use due diligence in collecting the assets of the bankrupt estate, and that he will be charged with the value of assets lost by a failure to discharge this duty. A difficult problem arises, however, where the bankrupt has converted and wasted estate assets, and subsequently acquires sufficient non-estate assets to equal the value of the assets converted. If there is a method whereby the trustee can obtain restitution for the loss to the estate, he must use due diligence to collect the claim for the benefit of creditors, or be …

Bankruptcy - Corporate Reorganization - Limitation On The Right To Appeal From An Order For The Allowance Of Compensation In A Corporate Reorganization Under The Chandler Act, Michigan Law Review

Michigan Law Review

A petition for reorganization was approved by the district court, and members of a bondholders' committee were granted an allowance for services. As the award was much less than the amount sought, the committee asked leave to appeal of the circuit court of appeals. Leave was granted and the allowance increased. In the Supreme Court the petitioner claimed that the circuit court of appeals had no jurisdiction on the theory that the committee was confined to an appeal as of right, which could only be taken by filing notice of appeal in the district court. Held, the circuit court …

Bankruptcy-Corporate Reorganization-Publicly Held Securities As A Test Of Availability Of Relief Under Chapters X And Xi Of The Chandler Act, Edward S. Biggar

Michigan Law Review

Chapter X of the amended Bankruptcy Act of 1938 was mainly the product of the investigation by the Securities and Exchange Commission of reorganization practices under the old equity procedure and under section 77B. The chief aim of the sponsors of this new chapter was to preclude the control of reorganization proceedings by "inside" groups, and thereby more adequately protect the interests of investors. Contemporaneously with the overhauling of section 77B, however, other sections of the old Bankruptcy Act were being revised. Among the changes effected, old sections 12 and 74, dealing with extensions and compositions, were remodelled and combined …

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 …

Contracts - Sales - Effect Of Reasonable Belief In Buyer's Insolvency On Seller's Duty To Perform, W. Wallace Kent

Michigan Law Review

The plaintiff ordered goods from the defendant, for immediate delivery, terms $1,500 down, balance covered by notes of three and six months. The check given for the down payment was dishonored because of insufficient funds but was subsequently honored. On investigation the defendant discovered that there were unpaid judgments outstanding against the plaintiff, some of which were upwards of three years old. Inferring that the plaintiff was insolvent, the defendant refused to deliver the goods unless cash was paid therefor and when plaintiff refused this offer defendant attempted to return the down payment. Held, plaintiff's affairs were in such …

Trusts - Constructive Trusts - Preferential Claim Against Bank's Assets For Deposits Made After Hopeless Insolvency, James W. Deer

Michigan Law Review

On proclamation by the governor of the so-called bank holiday, the Union Guardian Trust Company was closed as of February 11, 1933. The evidence showed that within nine months of closing the company had made provision for obtaining $2,500,000 by pledging assets, had received loans amounting to $12,000,000 from the Reconstruction Finance Corporation, and was conferring frequently with the officers of· that agency to negotiate an additional $44,000,000 loan. Under the authority of emergency legislation passed after the bank holiday, a conservator was appointed. By the plan of reorganization all the assets of the company were set aside in a …

Corporations - Limitation Of Actions - Nature Of Directors' Statutory Liability For Illegal Loans To Stockholders, Oscar Freedenberg

Michigan Law Review

The creditors of a bankrupt corporation sued its directors under a New Jersey statute that made the directors liable for all corporate debts to the extent of loans illegally made to stockholders. The decision hinged on the nature of the directors' liability with respect to the New Jersey statute of limitations. The directors maintained that the action was either for a contractual debt or else for a penalty, and that in either case it was barred by limitations. Held, that the liability of the directors was neither for a simple debt nor for a penalty within the meaning of …

Corporations - Reorganization - Effect Of Forfeiture Of Charter, Edward S. Biggar

Michigan Law Review

The charter of a Michigan corporation was forfeited for nonpayment of franchise fees. The statute provided conditions upon the fulfillment of which a forfeited charter might be reinstated. Without fulfilling the conditions and after the expiration of the statutory period during which it was allowed to continue in existence for the purpose of winding up its affairs, the corporation petitioned for reorganization under the Bankruptcy Act. Held, that the petitioner had no corporate existence under the laws of Michigan, and that, therefore, it could not invoke the jurisdiction of the federal bankruptcy court. In re Columbia Hotel Co. of …

Corporations - Reorganization- Fair And Equitable Plan, G. Randall Price

Michigan Law Review

Both section 77 B of the federal Bankruptcy Act and chapter X of the Chandler Act provide that the judge shall find the plan of reorganization to be "fair and equitable" before he approves it. This and similar expressions had acquired a well-recognized content in equity reorganization before the statutes were enacted. Congress probably intended to enact the Boyd case rule. Several lower court decisions have expressed doubt as to just what the phrase "fair and equitable" means under the federal Bankruptcy Act. To find the meaning of the phrase "fair and equitable," it is necessary to look back to …

Trusts - Spendthrift Trusts - Beneficial Interest Held Not Attachable To Make Good Liability As Trustee, W. Wallace Kent

Michigan Law Review

Janet Jones was an inactive trustee and one of the beneficiaries of a spendthrift trust. Because of lack of good judgment on the part of her co-trustee, and without any moral fault on her part, Janet was charged with liability for a large sum. Her surety, who paid the succeeding trustee, took an assignment of the rights of the trust estate against Janet Jones and demanded that the trustee pay to it all the income, past, present and future, which the trust instrument gave to such beneficiary. The trustee brought this action for instructions. Held, as the trust estate …

Taxation - Federal Income Tax - Distinction Between Sale And Tax Exempt Reorganization Under Section 112, Henry J. Merry

Michigan Law Review

The recent Supreme Court decision in Le Tulle v. Scofield, disapproving the views of four out of five circuit courts of appeals, appears to add a new and more specific requirement to the already complex law on the subject of statutory reorganization under the Revenue Act of 1928 -- that the consideration received by the transferor corporation include some stock of the transferee corporation. In the subject case, the Gulf Coast Irrigation Company transferred substantially all its assets to the Gulf Coast Water Company in exchange for $50,000 in cash and $750,000 in mortgage bonds, four-fifths of which matured …

Bankruptcy - Corporate Reorganization - Section 77b - Chapter X Of The Chandler Act - Right Of Creditor To Question The Good Faith Of A Reorganization Petition, Edmund O'Hare

Michigan Law Review

Appellants, two creditors of debtor, objected to the approval of a reorganization petition filed under section 77B by appellees, who were also creditors of debtor, claiming that the petition was not filed in good faith. Held, that appellants had sufficient standing to question the approval of the petition, since any single creditor may raise the issue of the good faith of the petitioners. Snyder v. Fenner, (C. C. A. 3d, 1939) 101 F. (2d) 736.

Corporations - Modification Provisions Of Corporate Mortgages And Trust Indentures, Charles H. Haines Jr.

Michigan Law Review

As early as the late 1800's it was not uncommon to find included in corporate mortgages and trust indentures provisions looking to the modification of the rights of the bondholders by action of a given majority of such holders. Ordinarily the power conferred could not be exercised by the holders of less than seventy-five per cent in value of the outstanding bonds; the modification authorized might be the alteration of security rights, the deferment of payments of interest or principal, the reduction of interest, or even the reduction of the debt. Inasmuch as the same equitable doctrines limit their use, …

Bankruptcy - Corporate Reorganization - Section 77b - Chapter X Of The Chandler Act - Boyd Case Rule, Edmund O'Hare

Michigan Law Review

A subsidiary of the defendant corporation filed a reorganization petition under Section 77 B of the Bankruptcy Act and defendant presented a claim of over nine million dollars as a creditor, the claim being grounded upon moneys paid by defendant to the subsidiary for its benefit, management and supervision fees, rental and interest charges, and declared but unpaid dividends. Defendant owned about ninety-eight per cent of the common stock of the subsidiary. As the result of objections by the trustee and preferred stockholders of the subsidiary, defendant's claim was compromised at five million dollars. The reorganization plan provided in part …

Corporations - Derivative Suits - Insolvency As A Bar, Edmund O'Hare

Michigan Law Review

Plaintiff, stockholder in defendant bank, brought a derivative suit against the bank's directors to recover moneys allegedly wrongfully appropriated by them from the bank's assets. Before the commencement of the suit the bank had become insolvent and was in the process of liquidation. Held, the directors' motion to dismiss should be granted, since a stockholder may not maintain an action to hold an insolvent corporation's directors liable for fraud or mismanagement unless it appears that he will be benefited by the relief demanded, and full recovery here would still leave an excess of liabilities over assets. Falvey v. Foreman-State …

Bankruptcy - Corporate Reorganization - Validity Of Process Outside Territorial Confines Of Federal District Court, Edmund O'Hare

Michigan Law Review

Debtor corporation had contracted with defendant, operator of a retail store, whereby defendant agreed to sell debtor's products exclusively and to buy all of his supplies from debtor. While debtor was in the course of section 77 B reorganization proceedings, defendant refused to continue to comply with the contract, Defendant resided and did business in the same state and federal judicial circuit in which the reorganization court was located, but not within the territorial confines of the court, nor was process served upon defendant within the court's territorial jurisdiction. Debtor moved for specific performance of the contract. Held, debtor's …

Taxation - Income Tax - Whether Purchase And Retirement By Corporation Of Own Bonds At Less Than Amount Of Issue Constitutes A Taxable Gain Where Corporation Is Insolvent, S. R. Stroud

Michigan Law Review

Petitioner, a railway corporation, in 1906 leased all its property to an operating company for a term of fifty years. At the same time petitioner issued $434,000 in first mortgage bonds which were used to refund a prior issue of $350,000 and to provide for certain improvements on the road. Interest on the bonds was to be met by lessee's payment of the greater part of the rental directly to the trustee of the mortgage bonds, but no provision for a sinking fund was made. In October, 1932, petitioner purchased $19,000 par value of aforesaid mortgage bonds for $4,750, and …

Bankruptcy -Trustee's Liability - Effect Of Requirement Of Deposit In Designated Depositary On Trustee's Common Law Duty Of Due Care, Russel T. Walker

Michigan Law Review

In a suit to charge a trustee in bankruptcy for the loss of funds of the bankrupt estate caused by insolvency of the depositary bank, the trustee contended that as he had fulfilled the requirement of section 61 of the Bankruptcy Act by depositing the funds of the estate in a "designated depositary," he could not be charged with liability for any loss occurring thereafter; he argued that section 61 repealed, by implication, the trustee's common-law duty of due care in the handling of estate funds after they were deposited in a "designated depositary." Held, the fact that the …

Garnishment - Full Faith And Credit - Nature Of Principal Judgment, John N. Seaman

Michigan Law Review

Plaintiff, appellee, sued an Illinois insurance company for legal services, and on the same day sued out a writ of garnishment against a Michigan debtor of the insurance company. Two days later the insurance company was dissolved in Illinois under the provisions of the Illinois Insurance Code, and an Illinois liquidator was vested with title to all of the insurance company's property, wherever located. The liquidator intervened in this case, claiming prior title to the garnishment debt, by virtue of the Illinois statute and judicial proceedings. Held, the commencement of the garnishment suit gave plaintiff a lien on the …

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 …

Bankruptcy - Corporate Reorganization - "Good Faith" In Presenting Petitions For Reorganization Proceedings, Arthur P. Boynton

Michigan Law Review

Reorganization proceedings for corporations are now provided for in chapter ten of the recently enacted Chandler Act, which supersedes the provisions of 77B. This legislation, designed to aid corporations which are insolvent or unable to meet their debts as they mature, is available to all commercial corporations except municipal, insurance, and banking corporations and railroad corporations authorized to file a petition under section 77 upon the proper showing. Sections 130 and 131 enumerate the necessary requirements of any petition filed for the purpose of obtaining reorganization. However, the most important prerequisite to this relief, from the standpoint of difficulty in …

Contracts - Consideration - The Rule Of Foakes V. Beer Discarded, Arthur A. Greene Jr.

Michigan Law Review

In an action on a promissory note, by an indorsee who was not a holder in due course, the defendant pleaded the following facts. In 1930 the payee held the promissory note of the defendant, who was known to be hopelessly insolvent. An agreement was thereupon made and executed between the payee, the plaintiff and defendant, whereby the plaintiff agreed to purchase the note from the payee in exchange for his automobile. The defendant in turn agreed to turn over to the plaintiff certain livestock or produce, to pay a certain balance in cash, and also to pay the license …

Contracts - Third Party Beneficiary - Right Of Promisor To Set Off Claim Againt Promisee In A Suit By Beneficiary, Arthur A. Greene Jr.

Michigan Law Review

A and B mortgaged real estate to the plaintiff to secure their notes aggregating $9,000. Six months later A and B exchanged this property to the defendant for certain real estate owned by her. By the deed the defendant assumed the mortgage indebtedness owed to the plaintiff. As a further consideration for the exchange, A and B executed a note for $13,050 to the defendant. The plaintiff instituted this action against A and B, seeking to recover the balance, and by amended petition joined the defendant. The defendant claimed the right of set-off on the uncollected judgment against A …