Opinion ID: 1550675
Heading Depth: 1
Heading Rank: 4

Heading: Validity of the Act as Applied to Appellants

Text: Appellants' point here, under their Tenth Proposition, is divided into two subheadings, the first of which is entitled As here applied the Bankruptcy Act prefers junior liens to senior liens, and discriminates among liens of equal rank. This particular phase of appellants' argument we shall deal with under our discussion of the merits of the controversy. The second portion of this Tenth Proposition is subtitled The California statute purporting to consent to this proceeding is void under the Constitution of California. The California legislature enacted a statute authorizing its agencies to proceed under the federal Bankruptcy Act (California Statutes, 1939, Chapter 72, p. 1009). The argument of appellants, however, is that such statute is invalid in that it is repugnant to Section 16 of Article I of the Constitution of California which provides in part,    No    law impairing the obligation of contracts shall ever be passed. We do not deem it necessary to discuss this point in detail, as the United States Supreme Court disposed of a similar contention in the Bekins case. There the argument was made that the California statute purporting to consent to the proceeding was repugnant to the impairment of the obligation of contracts clause of the Federal Constitution art. 1, § 10. The Court did not consider the point well taken, and held that the proceedings under consideration were valid, since the State had consented. Even though the point is not discussed at length in the Court's opinion, the case is direct authority for the proposition that consent by a state to proceedings before the Federal bankruptcy court does not constitute an impairment of the obligation of contract as prohibited by the Federal Constitution. Since there is no difference between the wording of the prohibition in the Federal Constitution and the prohibition in the California State Constitution, it follows that like consent would not constitute an impairment of the obligation of contract under the California Constitution. Having determined that the court has jurisdiction under the Municipal Bankruptcy Act; that the former proceedings in the United States District Court are not res judicata of this proceeding; that the case pending in the California state court is no bar to it; and that the Act is valid as applied to appellants, we now approach the merits of this case with the consideration of the status of the R.F.C. It is quite apparent that if R.F.C. is to be considered in all respects as a simple owner of District bonds it must be considered along with other bondholders in the amount of the securities affected by the plan to consent or object to the plan of composition. If R.F. C. is to be considered in all respects as a mere loaner of money to the District, it cannot consent for the securities purchased by the money so loaned. If R.F.C. cannot so consent, the question arises, can anyone else consent for such securities? Other incidental questions will appear. Whatever may be the answers or the effect of the answers to these questions upon the right of this suit to be maintained, the answers will have a profound effect upon the point of solvency.